Deposit insurance fund may soon be coming to China

China insurance market news

The central bank in the country could be assembling this fund as soon as 2014.

As a step toward the establishment of an independent deposit insurance company, the central bank in China will likely be assembling a fund of that nature within the next year so that it will be prepared to provide the necessary coverage when its new product arm is ready to launch

Although this action has yet to be officially confirmed, the news has been leaked by several unnamed sources.

China deposit insurance industryThese sources, close to the central bank, have said that the deposit insurance fund would be an important step toward the creation of the independent insurer. According to the Governor of the central bank, Zhou Xiaochuan, if China were to set up this type of a fund in order to provide support for an intended program to insure deposits made to the bank, it could help to lay the foundation for liberalizing the deposit rates in the country.

It is believed that the China deposit insurance fund will be somewhere from $1.64 billion to $2.47 billion.

In local currency, this means that it will need to be maintained within the range of 10 billion yuan to 15 billion yuan. Furthermore, there will be a 0.015 to 0.02 percent premium rate that will be paid by the banks. This will not only be paid by the People’s Bank of China. However, there will not be a requirement for the smaller rural banks to have to pay into the pool for at least the next few years.

On Sunday, the People’s Bank of China stated that it would be giving commercial banks the opportunity to issue negotiable certificates of deposit for large denominations, which was another leap ahead in the direction of liberalization of interest rates.

Near the end of November, one of the central bank’s vice governors, Yi Gang, stated that the authorities in China were already “basically ready” to introduce this new bank deposit insurance. He added that the various participating financial institutions would pay fees for the coverage that would be relatively low and that once the pool was large enough, the authorities would stop having to collect any additional forms of fees for this same purpose.

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