CHINA – China Central Bank official to launch deposit insurance at an ???appropriate time???

June 2013

A vice governor of China’s Central Bank said that China will introduce a bank deposit insurance system at an appropriate time.

Pan Gongsheng, vice governor of the People’s Bank of China, didn’t give any hint of a fresh timetable for the move, which is seen as a key step in the plan to liberalise interest rates.

“A deposit insurance system should be introduced at an appropriate time,” he said at a financial forum.

The central bank sets benchmark interest rates, though it gives banks some flexibility in an effort to have interest rates that more closely reflect market conditions.

Expanding banks’ ability to set deposit rates has been a key policy goal, partly to make sure banks are more able to adapt to market forces in a less tightly regulated environment. However, regulators and bank executives have expressed concern that a liberalisation of interest rates would cut into bank profits and threaten some of the nation’s smaller and weaker financial institutions. They add that a deposit insurance scheme is needed to protect customers in case of a bank failure.

Mr. Pan also repeated previous official policy statements that China’s state-dominated banking system needs to introduce more private capital.

“Private investment in Chinese banks needs to be increased,” he said without elaborating.

A trial program is currently under way in the southeastern city of Wenzhou to bring more private investment into the financial system, though progress has been slow.