BIZCHINA / Top Biz News
Nation mulls establishment of deposit insurance system
(Xinhua)
Updated: 2007-01-17 13:39
The Chinese government is considering establishing a deposit insurance
system to protect bank customers.
The deposit insurance system, which involves setting up deposit insurance
institutions, aims to protect depositors against financial losses caused
by bankruptcy of financial institutions through a risk compensation
mechanism.
"The system will protect depositors' interests, raise public confidence
in the banking sector and contribute to the stability of the financial
system," said Wei Jianing, a researcher with the Development Research
Center under the State Council.
"The system will help prevent depositors from making mass withdrawals
from a bank, which can have a negative impact on other financial
institutions, even "healthy ones"," said Wei
"A mass withdrawal is usually highly 'contagious' in a financial market,
which is fragile and unstable by nature," he added.
Although no financial crisis have broken out in China, mass drawings have
occurred to a number of small to medium sized financial institutions in
recent years, posing direct threats to the whole banking system.
In 1999, the Hainan Development Bank went bankrupt when people formed
long queues at its outlets after learning the bank had acquired about 30
debt-laden urban credit cooperatives in Hainan Province.
The debate over whether to establish a deposit insurance system in China
has raged for a decade, but it is not until now that the conditions are
believed to have matured.
"It is high time the system is established," said Wei, "the system will
be exposed to lower risks because China's economic growth will continue
at a steady pace and the supervision over the banking sector has been
greatly enhanced thanks to the establishment of the China Banking
Regulatory Commission, the country's banking watchdog.
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