Don't Panic!

Yesterday, my friend texted me, "Dude anong bangko delikado ngayon?"

He was of course referring to the fear gripping depositors today amidst the problem brewing in Wall Street. There is the apprehension that Philippine banks might be adversely affected by their exposure to the troubled investment firms Lehman Brothers and Merrill Lynch.

I really think there is nothing to worry about right now. A bank won't close down just because it lost money in one investment. These banks have a diversified investment precisely to avoid becoming vulnerable to one losing venture.

In a worst-case scenario (where a bank actually closes), a depositor is not left holding the bag. The deposit liabilities of any bank are required to be insured with the PDIC. Thus, in the event of a bank closure, PDIC will become liable of up to P250,000 per depositor per capacity.

So the biggest problem is not the exposure of Philippine banks to the troubled US investment banks. The biggest problem would be the irrational fear of the depositors that can snowball into a massive bank run.

So I texted back my friend, explained the situation and added, "Relax. Don't panic!"


Photo: conorwithonen, Creative Commons, Flickr