Interest rate liberalization gained momentum from China’s plan of deposit insurance scheme

Summary

On Sunday night, the State Council, the Chinese cabinet, circulated a draft of deposit insurance rules for public consultation, suggesting that the long-awaited deposit insurance scheme will come to the fore soon. The deposit insurance scheme will cover all the deposit-taking institutions and insure up to RMB 500,000 for every depositor (corporate or individual) per bank, which, as the People’s Bank of China claimed, will provide full insurance coverage of more than 99.6% of depositors nationwide. In the meantime, the authorities will establish a new regulator for the upcoming deposit insurance scheme. The regulator is expected to run a deposit insurance fund collected from insured banks and implement banks’ resolution if needed. However, some technical messages are still missing in the draft. For example, it doesn’t say how much the new regulator will charge banks for the deposit insurance fund. Moreover, it doesn’t specify when this deposit insurance scheme will set in motion although some domestic news media units reported that it could start as early as the second quarter of 2015.

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