(Bloomberg) — China will start an insurance system for bank deposits, a move toward scrapping remaining controls on interest rates and allowing lenders to fail in a more market-driven economy.
The government will insure deposits of as much as 500,000 yuan ($81,367) per saver at each bank covered, the People's Bank of China said in a draft rule on its website yesterday. It didn't give a start date or detail what premiums banks may pay, saying only that they may differ depending on lenders' management and risk conditions. The PBOC is seeking feedback through Dec. 30.
Deposit insurance erodes an implicit government guarantee behind China's state-controlled banks and clears the way for the nation to deregulate savings rates, increasing competition for funds. That may exacerbate a liquidity shortage at smaller banks and boost their chance of failure as savings shift to the biggest lenders.
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