How To Establish An Sound And Effective Explicit Deposit Insurance System In China

Explicit deposit insurance system(thereafter as DIS) acts as an essential part for establishing all-round financial safety-net, acquiring international and domestic recognition for its considerable significance played in protecting depositors and maintaining financial stability. As stable advancement of market economy and financial adjustment, the weakness of the implicit deposit insurance system became increasingly obvious, therefore most jurisdictions have abandoned its previous implicit DIS and changed into explicit DIS, with strong adjustability with its domestic financial advancement and stability. At the same time, as distinguishing trend of financial globalization and liberalization in China, nation-owned banks under “too big to fail” policy has gradually accomplished joint-stock system reform and meantime much private capital has been put into banking industry, which provides suitable environment for officially building explicit DIS in China. For a long time, China has conducted positive exploration for how to establish an adjustable explicit DIS. Far from 1993, the State Council mentioned related issues of building deposit insurance funds, following with many times of emphases in significant conferences and plans. Eventually, in 2015, with the promulgation of “China Deposit Insurance regulation”, national-wide explicit DIS has been officially established in China. However, during the process of developing a more workable deposit insurance system, common challenges are faced with different jurisdictions, which is how to build a well-designed deposit insurance and how to maintain the effectiveness of deposit insurance on prevent widespread bank runs. Many helpful experiences and lessons can be learned from advanced jurisdictions that already have a long history of operating an explicit limited deposit insurance system. And in order to provide a helpful guidance for nations, the Basel Committee of Banking Supervision and International Association of Deposit Insurance worked together in 2008 for developing a uniform set of guidelines for deposit insurance, and then With overall consideration of practices of applying Core Principles 2009 and international regulatory progression, IADI built an internal steering Committee for reviewing and upgrading the 2009 version and come up with a proposed set of revisions in 2013, which is “ Core Principles for Establishment of Explicit Deposit Insurance System” in 2014. The main functions of Core Principles are not only to provide guidance for countries when considering newly introduction or further reform of DIS, but to be applied by international financial organizations, like International Monetary Fund(IMF) and World Bank to assess the effectiveness of existing DIS and its practices, within Financial Sector Assessment Program.This paper will firstly simply introduce basic knowledge of deposit insurance and then conduct an illustration about IADI Core Principles and the practices of application of Deposit insurance in US and Canada. Following, the attention will be paid on the establishment of explicit deposit insurance in China, with analysis of current operating environments in China. After conducting a detailed assessment of the compliance of China’s new deposit insurance system with Core Principle, some deficiencies will be observed. The next part will raise feasible recommendations for China to further develop a more effective deposit insurance system.