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Chinese Plan For Bank Deposit Insurance

bank deposit insuranceChina has taken major leaps forward in reviving its lagging bank sector by finally deciding to implement a banking deposit insurance system. This is a move that the country has been needed for a serious amount of time and will help to further discipline China’s lenders and customers.

The Chinese Government’s top decision-maker, the State Council, released their draft documents last week which stated a plan to insure up to £52,000 in deposits made by ether businesses or individuals per bank. The banks and the Chinese public have up until the 30th of December to comment on the draft and raise any issues.

There isn’t a ‘set-in-stone’ live date for the insurance proposal but officials have said that it could come into play by as early as January 2015. China has never had any type of deposit insurance while other countries have had it for many years. The Chinese public and banks have just been assuming that the government would bail them out in a time of crisis.

The implementation of banking deposit insurance is suggesting that China will be comfortable in allowing banks to fail because the general public will be protected from such a turn of events. The proposal comes after years of dodgy lending to unstable industries such as solar panels, real estate and steel. The Bank of Communications’ Chief Economist, Lian Ping, said: “Deposit insurance will help reduce the perception that there is no risk in banking in China. It also paves the way for eventually realising interest-rate liberalisation.”

Chinese banks currently hold more than 112 trillion yuan in bank deposits which is one of the highest totals in the world. If this new insurance system goes ahead, over 99% of depositors would be covered. All banks will have to pay a fee towards the new insurance scheme based on their risk profiles and the size of their deposit bases.

James Savery, 02 December 2014

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