China ready for deposit insurance

BEIJING - China is ready to launch a deposit insurance scheme, a central bank official said Friday.

"Preparation for the deposit insurance has ended, and it will be launched soon," said Pan Gongsheng, deputy governor of the People's Bank of China, at a media briefing.

At the end of November, the Legislative Affairs Office of the State Council published draft deposit insurance regulations for public consultation.

According to the draft, institutions will pay insurance premiums and an agency will manage the money. The fund will pay maximum compensation of 500,000 yuan ($81,500) per depositor if a bank suffers insolvency or bankruptcy. Banks will pay indemnity with their own assets to those who deposit more than 500,000 yuan.

Deposit insurance is the norm in more than 110 economies, protecting depositors, in full or in part, from losses caused by a bank's inability to pay its debts when due.

"The 500,000 yuan limit is a relatively high figure among economies with deposit insurance. It is 12 times of China's per capita GDP and higher than the common practice of 2 to 5 times, internationally," said Pan. The 500,000 yuan maximum will protect 99.6 percent of Chinese depositors.

The scheme is an important part of any financial safety net. It is considered a precondition for China to free up deposit rates -- the last step in interest rate liberalization.