China Looking To Establish Deposit Insurance System: Pboc

The People's Bank of China (PBoC), China's central bank, proposed in its 2012 work conference that China should make preparation for the establishment of deposit insurance system, which will help guard against systematic risks of financial institutions and promote interest rate liberalization reform in the future.

"Establishing deposit insurance system consistent with China's national situation will play an important role in stabilizing financial system and enhancing depositors' confidence in banks," said Lian Ping, the chief economist with Bank of Communications, adding that this system would also accelerate China's interest rate liberalization reform, which may see further development in the next five years.

Zhao Qingming, the economist with China Construction Bank noted that the opportunity to introduce this system became more mature, as the four big commercial bank giants have all got listed with more optimized corporate governance structure and improved risk control capability.

However, some institutions believed that the time for the debut of this system still needed further consideration.

"Though this system will be beneficial to the development of banking industry in the long run, it will bring certain fiscal pressures to banks in the short term as they are required to pay certain amount of insurance. Meanwhile, some small financial institutions also face the problem of capital inadequacy," according to a report released by China Everbright Securities.

Deposit insurance refers to a system which requires banks to pay deposit insurance institutions a certain proportion of insurance, and if crisis happened the institutions are responsible to guarantee banks' solvency by means of fund aids. This system helps protect bank depositors from losses caused by banks' inability to pay its debts.

At present, over one hundred countries and regions have established deposit insurance system. However, the establishment of this system in China saw vicissitudes. The third national financial work conference in 2007 had put the establishment of deposit insurance system on the agenda. But the global financial crisis made it postponed.

Zhou Xiaochuan, the governor of China's central bank, pointed out that China needs to seek an appropriate time to launch this system.