Deposit insurance system to be launched at ‘appropriate time’

China will launch its deposit insurance system at an “appropriate time”, Pan Gongsheng, deputy governor of the central bank, said on May 22.

The deposit insurance system, first used in the United States, was established in the 1930s to guard against risks that banks and depositors face during financial crises. More than 100 countries currently use such a system.

But such a system is absent in China as banks are endorsed by the government, so debts can be discharged by the local governments and the People’s Bank of China, the central bank.

However, experts are calling for establishment of a deposit insurance system as market-oriented interest reform moves forward.

PBOC Governor Zhou Xiaochuan has reiterated the importance of deposit insurance system on many occasions. He regards it as a vital part of the financial safety net, and praised its effectiveness in guarding against risks during the global financial crisis.

Pan was speaking during a forum in Beijing, but he didn’t give more information.

Lin Caiyi, a senior economist with Guotai Junan Securities, said such a system would benefit China.

“A deposit insurance system will create better conditions for market-oriented interest reform,” Lin said.

“Now is an appropriate time to launch the system.”