Enhancing Bank Liquidation Process

A MEASURE seeking to institute needed reforms to the current bank liquidation system has been filed at the House of Representatives.

House Bill 6157, principally authored by Rep. Rufus Rodriguez (2nd District, Cagayan de Oro City), addresses the problems and concerns that continues to plague the system currently in place.

Rodriguez and co-author Rep. Maximo Rodriguez, Jr. (Abante Mindanao party-list) said the measure represents an opportunity to advance and apply the lessons learned from previous bank closure experiences, highlighted no less by the recent global economic recession.

The bill, to be known as the "Closed Bank Liquidation Act of 2012," removes the mandatory 90-day receivership period prior to liquidation to allow for a seamless transition from closure to liquidation.

"What the bill ultimately seeks to accomplish is ensure a healthy and resilient banking system upon which the nation's financial sector relies heavily on. In doing so, it not only lends itself to the country's economic roadmap but also aligns the country's deposit insurance system with international best practices and standards," Rodriguez said.

Rodriguez said experience has shown that rehabilitation is no longer feasible after the Monetary Board has closed a bank, mainly because of the latter’s dismal financial condition at the time of its closure.

"Coupled with the bank's eroded franchise value, it virtually negates the chances of a successful recovery," he said.

Rodriguez said bank closure is imminent or unavoidable during financial distress. "We should have financial safety net that will not only protect the interests of all parties affected by a bank closure but also allows for the resolution of the failed bank in an efficient and prompt manner with minimum negative impact on the stability of the banking industry," he said.

The bill authorizes the statutory liquidator of closed banks to implement alternative bank liquidation methods such as Purchase of Assets and Assumption of Liabilities transaction and Bridge Banking.

Rodriguez said both methods are widely used in other jurisdictions and are deemed less costly for the government and less disruptive to the financial system.

Furthermore, the bill introduces significant reforms which address the limitations of existing laws on bank liquidation such as clear procedures for the takeover of closed banks and for the filing of the Petition for Assistance in the Liquidation of closed banks (PAL) and termination of the bank's corporate existence as well as the powers and functions of its stockholders, directors, and officers upon the bank's closure minimizes unnecessary interference and delay in the liquidation process resulting from unwarranted suits brought about by stockholders of the closed bank.

The bill also provides explicit authority of the bank liquidator to determine the liquidation price of the closed bank's assets based on generally-accepted valuation principles and internationally-accepted valuation standards and practices and explicit authority of the bank liquidator to avail of various modes of disposing real and personal properties of closed banks.

The measure also prescribes a one-year period within which the closed bank's creditors and stockholders have paid their claims against the bank, to be reckoned from the publication of the notice of the approval by the liquidation court of the final distribution of the assets of the closed bank. Claims that remain after the lapse of the said period shall be turned over to the government.

The bill imposes six months to 12 years imprisonment and a fine of P2 million or both to violators.

The Philippine Deposit Insurance Corporation (PDIC) is mandated to prescribe the rules and regulations necessary to implement the provisions of this Act.