China prepares bank deposit insurance

[HenryTo]

This further shows that the Chinese is in a hurry to clean up their financial system and infrastructure:
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Wednesday September 28, 10:07 AM

China prepares bank deposit insurance - paper

BEIJING, Sept 28 (Reuters) - China has stepped up work on an insurance system to protect bank depositors, part of steps to modernise the financial industry as foreign competition rises, the Financial News said on Wednesday.

Central bank governor Zhou Xiaochuan has called for a deposit insurance scheme that could give ordinary savers a formal line of defence against the collapse of financial institutions.

While there has been no official protection for depositors in China, the government has usually handled local banking crises by stepping in to bail out lenders.

Authorities had started designing a deposit insurance system "in line with China's own conditions", the Financial News said, citing central bank officials at a forum on the subject.

"In a market-oriented economy, depositors' money should not, and cannot, be guaranteed by the government," the newspaper, published by the central bank and the banking regulator, said.

"Setting up a market-based risk compensation mechanism jointly shared by depositors, financial institutions and the government is extremely urgent."

State media have said that China started drafting rules for an eventual bank deposit insurance system following in-principal approval by the State Council, or cabinet.

The government has tightened supervision over financial institutions since the start of the Asian economic crisis in 1997, fearing problems with its debt-ridden banks and trust firms could trigger financial turmoil.

It has shut down dozens of trusts and banks since then, including Guangdong International Trust and Investment Corp. (GITIC), Hainan Development Bank and some credit cooperatives.