PBOC’s New Deposit Insurance Fund to Provide Safety Cushion for 68 Trillion Yuan in Personal Deposits

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The new depository insurance fund launched by the Chinese central bank is expected to provide a “safety cushion” for China’s roughly 68 trillion yuan in personal deposits.

On 24 May the People’s Bank of China (PBOC) officially launched the Depository Insurance Fund Management Co., Ltd. (存款保险基金管理有限责任公司) with registered capital of 10 billion yuan, as part of efforts to bring China’s financial system in line with those of other jurisdictions.

Prior to May 2015 the deposits of Chinese citizens made at domestic banks were all fully backed by the state and the Chinese central bank.

Following the rapid liberalisation and growth of China’s banking sector, however, and the subsequent rapid entry of commercial banks, private banks, credit unions and foreign-invested lenders, Chinese regulators became increasingly concerned about the moral hazard created by its full backing of deposits.

As a consequence China implemented the “Depository Insurance Regulations” (存款保险条例) on 1 May 2015, and established a specialised depository insurance fund.

The Regulations stipulated that when individual financial institutions met with difficulties and were unable to guarantee the security of personal deposits, customers would enjoy prompt repayment of up to 500,000 yuan in personal deposits in order to protect their lawful rights.

As of 31 December 2018 a total of 4017 deposit-accepting banking sector financial institutions in China had taken out insurance in accordance with the regulations, generating a depository insurance fund balance of 82.12 billion yuan.

Analysts say that PBOC has established the new Depository Insurance Fund Management Co., Ltd. in response to ongoing growth in the scale of personal deposits in China, attended by a rise in financial market risk.

Official data indicates that as of the end of 2018 Chinese households had personal deposits worth 68 trillion yuan in total.

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