Banking Supervision Under The New Structure Of The Deposit Insurance System Redesign

With the development of the reform, hazards in the finance system are relieving gradually. Problems about both stabtbility of bank system and protection of savers increasingly become a public focus. The common way abroad is to set up the Deosit Insurance System (DIS) and regard the DIS as an important approach of finance Regulatory. So it is necessory to build China's DIS according to foreign practice. This strategy conforms to not only the international convention but a certainty choice for banks in China.In 2003,State Council of the People's Republic of China have decided to set up China Banking Regulatory Commission(CBRC);Standing Committee of National People's Congress discussed and issued The Banking Regulatory Act. Therefore, under the new finace regulatory in which the People's Bank of China(PBC) carries out the monetary policy and the CBRC performs the function of Regulatory, the DIS will both coordinate the central bank's monetary policy which can smooth the monetary conduction mechanism and make the banks become real market sectors and avoid their moral hazards. This article discusses the issue from two point of view which are the regulatory and the market sectors. It comprises three sections:The first section states the theory basis of the DIS. During the reform process,the bank system of China accumulate a great deal of low quality assets due to the institutional factors, however, the interior defect of finance system make it possible that the crisis bursts out. Under the circumstance of asymmetric information, the 'infection effect' of single bank's bankrupt will cause a large scale of runs on banks and imperil the stability of the whole finance system. Conventional saving theory shows that deposit cannot convert to unfaltering invest because of the absence of protection. As a result, the economy growth is limited to a low level. After appling the DIS, deposit will convert to stable invest due to the powerful guarantee and economy will achieve equilibrium at a high level.The second part introduces the operation mechanism of DIS abroad, such as America, Britain, Japan and Hongkong. It mainly states the dynamic development of the DIS in these countries and provides experience for China by international comparison.The third section is an innovation of this article .It mainly discusses how to design the mode of China's DIS. Under the new management in which the PBC carries out the monetary policy and the CBRC performs the function of regulatory, the article discusses the DIS's target from two points of view which are the regulatory and the market sectors. Then, it analysises the targeting orientation and function, institutional orientation, insurance range, insurance pattern, premium rate and standard of compensation of the China's DIS. And it also discusses some related issues in the establishment of China's DIS , for example, the methods dealing with problem banks , the application of the deposit insurance fund and so on. Furthermore, the article probes the law construction, the control of moral hazard and the securitization of the deposit insurance of the DIS. And these measures will provide an institutional guarantee which can improve the DIS, keep the finance system stable and promote the economy growth.