New deposit insurance agency in works

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A bank staff member counts Chinese currency Renminbi (RMB) at the Beijing Branch of the Bank of Communication in Beijing, capital of China. [Photo/Xinhua]

China may soon establish an independent deposit insurance agency covering financial institutions that accept deposits from the public, according to some knowledgeable policy advisers.

The proposed agency will seek to protect depositors, they said.

Such cover will likely be up to the insured limits applicable to depositors, and will help maintain the stability of the financial services sector, they said.

More details, such as the functions of the agency, which is being envisaged as a separate legal entity, are being worked out.

The larger idea, designed and proposed to the country's top legislators during the ongoing two sessions, is that such a mechanism will be of great help in the event of a bank run or credit risks.

Based on the scheme, the proposed insurance fund manager will collect premiums from member financial institutions.

Such premiums will be differentiated based on risk levels applicable to each such member.

The institutions can make a claim for payment, or start the depositor reimbursement, under certain conditions, according to the proposals viewed by this reporter.

It will be the first such national agency to be created under the basic deposit insurance system established in May 2015.

The proposed agency could help failed banks exiting the market, limit depositors' losses, and prevent risk contagion from spreading to the whole financial system, the officials concerned said.

The central bank has already collected insurance premiums from depository financial institutions seven times. And the deposit insurance fund amounted to 81.5 billion yuan ($12.13 billion) by the end of September 2018, according to the financial stability bureau of the People's Bank of China.

According to a proposal presented to the National People's Congress by Wang Jingwu, head of the PBOC's financial stability bureau, when financial institutions' capital adequacy ratio-the adequacy of their capital keeping in view their risk exposures-drops below 2 percent, or when there are serious credit risks, the resolution process will get triggered. The insured institutions could then take self-rescue measures within 90 days.

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