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Can banks protect depositors’ money?

May 30, 2023 Mario Fetalino Jr. 110 views

Mario FetalinoLAST year, one of the banks I transact with endorsed its partner company that offers investment products. I trusted the bank so I also trusted the sister firm where I got a retirement plan.

The plan required an initial deposit which the investment company eagerly deducted from my account in that bank owned by a leading real estate developer.

Then, problem came too soon. The investment company suddenly informed me they are terminating my policy. According to them, I wasn’t able to pay the second payment on time.

But when I made inquiries, I learned they simply didn’t know how to collect my payment. The truth is I signed documents authorizing auto-deduction from my bank account but they were inexplicably oblivious about it.

When they double checked, they found out I was right and they were sorry for their big mistake. I accepted their apology but they lost my trust and confidence for obvious reason – how can one entrust precious funds to a reckless caretaker?

I requested a refund of my initial deposit but I was turned down by the investment firm. My bank that endorsed its sister company wasn’t able to help me. This is contrary to a bank’s role to protect depositors’ money.

No other than the chief of the Bangko Sentral ng Pilipinas (BSP) made an important reminder on this particular role of banks. BSP Governor Felipe Medalla recently likened bank owners to public servants, saying the former’s job is to protect their depositors’ money.

Medalla underscored the need to update banking laws to cope with the rapid changes, both in the law and financial innovations.

Having banking laws means being more loyal to depositors than the owner, he said, pointing out that 80 percent of the funds lent by banks consist of depositors’ money and only 20 percent is owned by the bank.

“In a sense, a banker is almost like a public servant. He’s taking care of the people’s money. That’s why banking laws must give regulators great cover when they do their jobs,” he said.

BSP data show that as of end-February 2022, the total assets of the country’s banking system grew by 7 percent year on year to P20.7 trillion, and the bulk of the assets are funded primarily by deposit generation and capital infusion.

The majority of the assets are held by universal and commercial banks at 94.3 percent, amounting to P19.5 trillion.

This is followed by the 4.2 percent share of thrift banks, or P872.8 billion, and rural and cooperative banks at 1.5 percent, or P312 billion.

Medalla said this is the reason why the central bank needs to have great cover from the laws to be fully capable of doing its job.

He said for one, the latest amendment of the law that allowed the BSP to borrow money from the public has enhanced the central bank’s capacity to address excessive liquidity that is sloshing in the economy and, in turn, negatively impact the local currency.

“In the past, we were not allowed to borrow from the public. The most recent revision of the law now allows us to do that. This has allowed us to refine our monetary tools,” he said.

In terms of the innovation in the payments system, which includes digitalization, the BSP chief said there would always be two sides – good and bad – and this is the reason “it is important to chronicle these changes (in banking laws) to see where we have come from and to chart where we will go.”

“The reason self-interest is good for society is that there are rules, beliefs, and values that prevent self-interest from going haywire,” he said, adding that rules and beliefs are “extremely important for a progressive and inclusive society.”


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