By Song Hongmei (chinadaily.com.cn)
Updated: 2007-08-03 11:57

People's Bank of China governor Zhou Xiaochuan signed a memorandum of understanding with US Federal Deposit Insurance Corp (FDIC) Chairwoman Sheila Bair yesterday to cooperate on promoting a deposit insurance system for financial institutions in China.

China is considering setting up a deposit insurance company and will use the FDIC's experience as a reference, said Zhou, who did not give a specific timetable.

According to the memorandum, the central bank will cooperate with the FDIC in deposit insurance as well as financial services and financial management.

The time is ripe for China now to establish a deposit insurance system, as the country has further opened up its financial sector and improved its supervision, said the central bank in a statement released yesterday.

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Zhou said a deposit insurance system would promote development in China's financial market by boosting the confidence of those who put their money into smaller, local banks.

The current lack of deposit insurance in China is mainly due to the fact that most banks in the country are State-owned, and offer guarantees to depositors, analysts said.

Deposit insurance has been suggested by policy makers to protect deposits, in full or in part, in the event of banks' inability to pay deposits.

Established during a Great Depression banking crisis in the 1930s, the FDIC insures customers' deposits with a US$51 billion fund. Coverage includes up to US$100,000 for each depositor and US$250,000 in retirement accounts.

Deposits in foreign branches of US banks, however, are not covered by the FDIC.

The FDIC also assesses insurance fees to banks based on risk levels.

Currently, nearly 100 countries have official deposit insurance systems.