China: Central Bank Proposes Deposit Insurance Agency To Help Curb Potential Losses

US Dollar and China Yuan
U.S. Dollar and China Yuan notes are seen in this picture illustration June 2, 2017. (Photo: REUTERS/Thomas White)

A proposed deposit insurance agency is aiming to cover Chinese financial institutions that assist the community with their money. The proposed independent agency also aims to help reduce losses on the depositor's side.

According to China Daily, some policy advisers knowledgeable of the proposal revealed that the agency will help maintain stability in the country's overall financial services sector. It is expected to cater to insured limits that depositors can obtain.

While there are not too many details about the proposed agency to date, it is expected to help reduce problems when credit risks arise or a bank run occurs.

The main idea surrounding the agency's function is premiums will be collected from member financial institutions that offer deposit services to consumers. The collected premiums will then be categorized based on risk levels that apply to every member.

Under a set of conditions, member institutions will be allowed to claim payments or initiate depositor reimbursement procedures, the proposal stated. If all goes well, the national agency will be the first of its kind since a basic deposit insurance system was established in May 2015.

As of September 2018, the Central Bank has collected insurance premiums amounting to 81.5 billion yuan, as recorded by the People's Bank of China's financial stability bureau. This amount was obtained from seven collection schedules.

In his proposal submitted to the National People's Congress drafted by Wang Jingwu, the head of the PBOC's financial bureau said, "The deposit insurance fund management institution could use the fund to inject capital in Systematically Important Financial Institutions."

The former head of the stability bureau, Zhou Quedong said the proposed deposit insurance system will be focused on the Chinese market even if it was designed based on American practices and insurance standards.

Meanwhile, China still leads the way in Southeast Asian countries with the fastest growth rates in the insurance industry. According to Entrepreneur, the latest CBRE Asia-Pacific report revealed that insurance firms in the country have been leasing office spaces actively for business purposes.

Leasing volume based on the number of insurance companies in 2018 saw an increase of 36 percent year-on-year. Furthermore, increased demand for universal life and traditional insurances helped contributed to Asia's overall economic advancement last year.

The report suggested that China's insurance industry surged in 2018 due to improved digital innovations. New players in the insure-tech sector further propelled the industry as mobile internet services provided by Tencent, Baidu, and Alibaba spurred a new trend in the previously traditional industry.

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