Deposit Insurance System And Its Built In China

A sound, competitive banking system is critical to a nation's economic vitality. The competition of China financial sector has been formed up, and the financial risk has been exposed out increasingly in recent years. It is essential necessary to amend China's financial risk resolving and stabilizing mechanism. On the basis of China's financial situation, it is of realistic sense to build up deposit insurance system in China. The content of this paper briefly divides into 4 parts as follows:Preface: the writing intention of this thesis is introduced.Part 1: First, the concept and essence of deposit insurance is clarified, and then the features of deposit insurance are analyzed. The features include feature of insurance and feature of public production. After that, the paper discusses the important compensation functions of deposit insurance system. Deposit insurance system can help to protect depositors' rights, enable insured depository financial institution to reduce risk effectively, maintain financial stability, and support economic growth. Part 2:The theoretical analysis of deposit insurance system is set off first. The configuration of the portfolios of banks makes them especially vulnerable to be illiquidity and insolvency; and the demise of one bank, if handled poorly, can spill over to others creating negative externalities and causing a more general problem. For this reason , according to the theoretical analysis of the functions of deposit insurance system, the necessity of deposit insurance has been demonstrated。 However, deposit insurance system may have negative effects, such as adverse selection and moral hazard etc. This paper then discusses some key problems about deposit insurance system such as organization, objection, coverage, moral hazard and bank runs, etc. It can be seen as the closer theoretical analysis of deposit insurance system. After that, it comes the realistic analysis of the deposit insurance. According to the survey and research of foreign deposit insurance system, the general situation and development trend of foreign deposit insurance system can be understood more clearly. The last but not the least is the closer realistic analysis of the deposit insurance. It discusses the best practices of deposit insurance system in normal times, based heavily on the principal feature of the deposit insurance system in many countries throughout the world and some of the lessons we have learned from them. First, the system needs to clearly define in law and regulation to reduce moral hazard. Then, to reduce the problem of adverse selection, ideally a deposit protection system should charge premium that adequately reflect the risk that each bank places on the insurance guarantee fund; After that, coverage should be low enough to allow large depositors to discipline their bank, and coverage that extends to one or two times per capita GDP is a suitable rule of thumb. And the insurance system will need funding that is adequate to meet the demands being placed on it. Besides, the insurance system should be independent from political interference. But it is important to note that there is not a "one size fits all" approach for any of the important elements in the deposit insurance system. Institutional, cultural, historical and legal differences among countries will dictate certain differences in the design of the deposit insurance system.Part 3: After analyzing the necessity and availability of building up deposit insurance system in China, the related policy is put up. It discusses deposit insurance and failed bank resolution systems; the role they play in a nations financial safety net; the advantages and disadvantages such systems provide; the establishment .coverage and funding of such systems; and failed bank receivership and resolution processes and considerations. The overview of China's deposit insurance system is as follows: The system is authorized by the State Council, and controlled by PBOC; the purpose of this system is to promote the safety and soundness of insu...