Date
24 September 2017
With a deposit insurance, China is injecting greater risk into the banking system, allowing lenders to compete more freely for depositors. Photo: Bloomberg
With a deposit insurance, China is injecting greater risk into the banking system, allowing lenders to compete more freely for depositors. Photo: Bloomberg

China close to bank deposit insurance

China is moving closer to a long-anticipated deposit insurance system that would inject greater risk into the banking sector and spur banks to freely compete for depositors.

The scheme is expected to go into effect as early as January and would insure accounts up to 500,000 yuan (US$81,000), the Wall Street Journal reported Friday.

Senior officials attended a conference on Thursday at the Beijing headquarters of the central bank to discuss details of the plan, sources with knowledge of the matter were quoted as saying.

The move is the most important economic reform under President Xi Jinping since he took the reins of the ruling Communist Party two years ago.

It’s part of a broader liberalization of economic policies which has included widening the trading band for the closely controlled yuan and permitting more stock investment in China by foreigners.

Central bank vice governor Hu Xiaolian told a forum Thursday that the bank is “speeding up” its effort to establish a deposit insurance system.

China boasts one of the largest bank-deposit bases in the world. As of the end of October, bank deposits were 112 trillion yuan.

Bank deposit insurance is commonplace around the world as a way to boost confidence in banks and prevent the kinds of bank runs that occurred during the Great Depression.

But for China, the insurance system has a very different purpose — to introduce some risk into a financial system where every banking product is implicitly guaranteed by the government.

By limiting the size of deposits that will be guaranteed, the central bank is signaling to lenders and borrowers to better assess credit risks, economists said.

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