The Legal Solution Against Moral Hazard In The Deposit Insurance System

The Prime Minister Wen Jiabao in his government work report of 2006 pointed out: "This year, the transition of China's accession to the WTO will be basically completed, it is necessary to strengthen the response to the sense of urgency."China's accession to the World Trade Organization nearly five years, China's financial operations will be fully open to foreign investment recently. While accelerates the pace of financial liberalization in China, the financial institutions are facing severe challenges, and some of our financial institutions will be eliminated in the competition. In order to cope with the financial crisis, our legal system should be introduced to deposit insurance system to safeguard our financial system.In practice, although the deposit insurance system can protect the interests of depositors and the security of financial institutions system, has also produced many negative effects. The most important negative effect is the moral hazard problem of deposit insurance. Moral hazard is the common challenge to the whole finance of world, which depositors lost enthusiasm to supervision of the financial institutions operating conditions and risks, and those banks would taken investment in high-risk projects. It is a threat to the stability of the financial system. Therefore only effectively prevent moral hazard of deposit insurance can it play a real role in finance system.This thesis started from the concept of moral hazard in deposit insurance, then analysis the manifestations of moral hazard of deposit insurance, and the reasons for the negative impact. Through the study of the relevant legal status, we also can get research and experience of deposit insurance moral on instructions from abroad. Then we could sum up the policies against the moral hazard of deposit insurance. The suggestion for appropriate legal perspective My recommendations firstly should be developed well-designed deposit insurance system to prevent moral hazard. Then improving our related legal systems, such as: the disclosure of information system, monitoring system capital structure, financial institutions desisting legal system and so on. We must create a good legal environment for effective prevention of deposit insurance moral hazard.