1. Text: | Print|

      Insurance system to improve banking

      2014-12-03 13:11 China Daily Web Editor: Qin Dexing
      1

      The introduction of the bank deposit insurance system in China will cause significant changes in the banking sector, increasing big banks' savings and putting small banks at a disadvantage. The move also signifies a fundamental change in the regulatory mentality.

      Earlier, the government was obliged to keep all banks safe and solvent, but the new deposit insurance system will allow the market to have a bigger say in deciding the future of the banks.

      On Sunday, the government issued draft rules on the crucial bank deposit insurance system, which will directly cover deposits of up to 500,000 yuan ($81,433) if banks go bankrupt. Such a scheme will protect 99.63 percent of Chinese depositors, the central bank said.

      Primarily, the new arrangement is aimed at protecting the interests of the public as China's economic reforms, including those in the banking sector, deepen.

      The expansion of the Chinese economy has given rise to some new risks, especially those brought about by exposure to the ballooning real estate sector and the pile-up of local government debts, both of which are related to the banking sector. If the risks become real, they will deal a heavy blow to the banks, leading to possible bankruptcy of some small lenders, which the insurance regime is intended to minimize.

      This is not an unfounded alarm. From 1998 to 2003, more than 300 financial institutions and companies became insolvent and collapsed, producing large amounts of debts that were largely covered by the monetary authorities through issuing credits.

      Although the bad loan ratio of China's banking sector remains low at about 1.1 percent, the central bank warned in April that the non-performing loan ratio of the 17 major banks could quadruple in the worst scenario of stress tests.

      Apart from protecting depositors, the new system is set to bring about profound changes to the banking sector. Small banks, in particular, face an uphill battle in maintaining their capital sources as depositors tend to put their money in major banks that are "too big to fail".

      According to the deposit insurance rules, the insurance institution can cover savings of up to 500,000 yuan. It means people who have more than 500,000 yuan in savings in small banks will have to consider moving their money elsewhere.

      This will force small banks to further raise their deposit interest rates (smaller banks generally offer rates higher than the big ones to attract depositors) and improve their operational efficiency to earn more profits from lending. Otherwise, their profit level will drop and their operations will be unsustainable. The major banks, though, could benefit from money transfers from smaller financial institutions, leading to rising capital concentration in the banking system.

      China's top five banks account for about half of the sector's assets and 60 percent of the total profits. In contrast, in the United States, the largest 25 banks account for about 40 percent of the overall banking assets.

      Following the deposit insurance system, the asset concentration level in China may rise further, leading to the problem of "too big to fail" if regulators cannot properly regulate the sector in accordance with the upcoming new changes.

      Nonetheless, the deposit insurance system is a major reform marking the shift to a more market-oriented regulatory model, which is crucial for a transitional economy such as China.

      Until now, the State acts as the lender of the last resort and shoulders a de facto responsibility of bailing out any insolvent financial institution, creating the problem of moral hazard. Taking advantage of that hidden rule, depositors did not care much about which banks are safer while the banks were hardly worried about the sustainability of their operations. Also, some reckless financial institutions engaged in risky deals with a view to making more profits only to incur unaffordable losses and become insolvent.

      The new insurance scheme will force such financial institutions to better abide by regulations and pay more attention to operational risks, thus improving the overall competitiveness of Chinese banks.

      Comments (0)
      Most popular in 24h
        Archived Content
      Media partners:

      Copyright ©1999-2018 Chinanews.com. All rights reserved.
      Reproduction in whole or in part without permission is prohibited.

      主站蜘蛛池模板: 国产a v无码专区亚洲av| 可以免费观看一级毛片黄a| 亚洲成AV人片天堂网无码| jizz日本免费| 最新精品亚洲成a人在线观看| 又粗又长又爽又长黄免费视频| 免费A级毛片在线播放不收费| 免费在线观看亚洲| 亚洲成aⅴ人片在线影院八| 日本免费电影一区二区| 亚洲AV无码日韩AV无码导航| 免费视频精品一区二区三区 | 91福利视频免费观看| 亚洲国产国产综合一区首页| 久久久久国色av免费看| 亚洲欧洲综合在线| 青春禁区视频在线观看直播免费| 亚洲色大成网站WWW国产| 免费真实播放国产乱子伦| 亚欧国产一级在线免费| 久久精品国产亚洲一区二区| 91精品啪在线观看国产线免费| 亚洲伦理中文字幕| 四虎永久免费地址在线观看| 黄桃AV无码免费一区二区三区| 亚洲精品免费视频| 午夜dj免费在线观看| 久久久久免费视频| 亚洲精品不卡视频| 国产成人免费ā片在线观看 | 噼里啪啦电影在线观看免费高清 | 狠狠综合亚洲综合亚洲色| 中文字幕一精品亚洲无线一区| 最近新韩国日本免费观看| 亚洲一区二区三区高清不卡| 亚洲av麻豆aⅴ无码电影| 日本亚洲欧洲免费天堂午夜看片女人员 | 亚洲理论片在线中文字幕| 天天天欲色欲色WWW免费| 国产免费内射又粗又爽密桃视频| 亚洲黄色中文字幕|