The plan would insure accounts Up to 500,000 yuan.
Banks and the investing public in China, the world’s second-largest economy, have been functioning on the believe that the PRC government would bail the China’s banks out in times of crisis.
China issued draft regulations to introduce a bank deposit insurance system for the first time, the latest in a series of steps paving the way for liberalizing lending rates.
The draft rules, issued by the legislative affairs office of the State Council, directly cover deposits of up to 500,000 yuan (HK$630,000), according to a notice published on the website of the People’s Bank of China (PBC).
The Deposit Insurance Act, which state media reports have said could start early next year, will cover the entire bank savings of 99.63 percent of all depositors, the State Council , or Cabinet, said in a separate explanation.
Banks have been given until December 30 to comment.
China has considered insuring savers’ deposits for around two decades, but the plans took on new urgency in the past year as the country sought to deepen economic reforms that included removing state controls on interest rates.
Mainland rules allow banks to pay savers no more than 1.2 times a benchmark deposit rate fixed by the central bank.
“Establishment of a deposit insurance system will help to better protect the interests of depositors and maintain public confidence in the financial markets and the banking system,” the State Council said.
Foreign bank branches operating in China, along with the overseas branches of Chinese banks, will not be covered by the scheme, the draft document said.
All banks under the system will be required to set aside capital, to be collected by the central bank and administered by a deposit insurance fund, to pay for the scheme.
The Cabinet will approve standard rates for the insurance program, along with additional risk rates, the draft regulations said. No details were provided.
The deposit fund will be permitted to invest in government bonds, central bank notes, and highly-rated financial bonds.
Control of deposit rates is a legacy of state planning and its financial troubles in the early 2000s, when its biggest banks were technically insolvent and bailed out by the government.
Source: The Standard Finance