The Legacy Bank Mess: Half-truths are Whole Lies (Part 2)

George Orwell wrote that “We have now sunk to a depth at which the restatement of the obvious is the first duty of intelligent men.” Ordinary depositors who are alarmed and dismayed by the actions and actuations of PDIC formed a group called DEADBOL (Depositors Enabling All Depositors of Banks of Legacy,). The members call on PDIC to fulfill its overall mandate of protecting depositors. The group demands that PDIC performs its own published mission of adopting “responsive resolution methods” and ensuring “prompt settlement of insured deposit.” So far, five months have passed since the closure of legacy banks, and depositors, who had put their faith in PDIC, are starting to believe and realize that PDIC does not intend to honor its obligations to its insured depositors. PDIC is spouting a lot of half-truths so as to condition the public and we now see that it is DEADBOL’s duty to expose these irresponsible statements of commission or omission, and restate the truth.

Congressmen, senators, and media have the mistaken notion that PDIC is funded by people’s money; PDIC is content for reasons of its own not to disabuse them of this misinformation. PDIC is a government agency that administers a fund that does not use taxpayer’s money. Except for the initial seed money of P3 billion pesos from the government, the Deposit Insurance Fund (DIF) is basically funded from premiums paid by all operating banks. You can be sure that the banks have found out a way to pass on these assessments to the depositors who absorb these hidden costs. To characterize the DIF, which has grown to more than P61 billion pesos, as government funds is a half-truth. That is like saying that SSS and GSIS funds are also owned by the government. Fortunately, the truth is that these funds are private funds but unfortunately, managed by government officials who are driven by dark motives and hidden interests.

On February 9, 2009, PDIC came out with a press release that it is “prioritizing the claims of depositors with regular savings accounts of P100,000 and below in keeping with the state deposit insurer’s mandate to protect small, unsophisticated depositors. “ Nograles further qualified this half-truth by saying that “in keeping with the PDIC’s mandate to protect the small, unsophisticated depositors” and that “stopping the payouts as some quarters have suggested will be prejudicial to small depositors who have valid deposit insurance claims.” Nowhere in the PDIC charter can one find the words “small” and “unsophisticated” but the PDIC president used both words to describe a depositor that his organization is supposed to protect. Now that the maximum insurance coverage is P500,000 per account, will Jose Nograles in servicing future claims say that a 100,000 pesos and below account represents a small depositor; P250,000, medium; and P500,000, big? Does having a small deposit make you an unsophisticated depositor? Where is Nograles getting his lexicon? Yes, we recall Senator Mar Roxas, during a senate hearing on the legacy mess, first using the words sophisticated and unsophisticated to describe both bank depositors and preneed investors. And the younger Nograles latched on to these words, as if to ingratiate himself with the legislative investigators. Labeling is a cognitive distortion which can lead to logical fallacies.

The truth is that the pdic is chartered “to promote and safeguard the interests of the depositing public by way of providing permanent and continuing insurance coverage on all insured deposits,” regardless of the size of the deposit but up to the statutory insurance coverage per account. It is a fact that this is the first time that PDIC has differentiated and prioritized claims according to the size of the account.

In congressional and senate hearings, Deputy Governor Espenilla, Jr. said that the BSP began investigating the Legacy banks as early as 2005. When a congressman asked Nograles why hadn’t PDIC earlier conducted its own investigation of the legacy banks, we heard Nograles mumble that due to bank secrecy laws, PDIC could only examine individual bank accounts only after a bank has been placed under receivership. This is a half-truth. BSP Governor Tetangco, Jr. in a August, 2005 speech to a financial forum says that he is “happy to report ……, our partnership with local financial regulators (SEC, IC and PDIC), is now fully operational with major projects currently underway. These projects include conglomerate mapping, information sharing, joint examination arrangements, rules harmonization and financial literacy.” The PDIC Forum 2004 proudly announced that RA 9302, the Amended PDIC Charter signed into law on July, 2004, enhanced “PDIC’s capability to minimize risks to the DIF by reinstating its authority to examine banks subject to prior approval of the Monetary Board” and investigate complaints related to unsafe and unsound banking practices. The PDIC newsletter trumpeted that this authority will fortify the financial sytem’s safety net by “allowing prompt remedial intervention.” Dictionaries define prompt as “performed with little or no delay” and remedial as “tending to improve or rectify.” Given then PDIC’s enhanced examination powers, did PDIC examine the books of the banks before the banks actually closed? And if it did, did it delay intervention until it was too late? Part 3 will attempt to provide answers to these burning questions.