Research On Establishing Deposit Insurance System In China Under Interest Rate Marketization

In recent years, the interest rate marketization in China is accelerating fast. China’s interbank overnight interest rates was as high as 30% in late June 2013, and during this period, some commercial banks occurred with ATM and Internet banking systems failure events, which reflect the liquidity risks of commercial banks in China. While in the process of interest rate marketization, commercial banks’traditional reliance on use of simple lever zoom operation mode will be impactecd, and the commercial banks will also face challenges of varying degrees of competition and market-oriented interest rate risk.Now China has implicit deposit insurance system in which the government guarantees the deposits in commercial banks. On one hand, in this case the behavior of Central Bank has great uncertainty, thus depositors are unable to predict when and to what extent the Central Bank will turn up to save after a crisis. On the other hand, commercial banks will likely pay inadequate attention to risk management and control without worrying about market exit. Once bankruptcy happened on a commercial bank, there would be great influence on the entire financial system and public finances stability in China. In November 2013 "CCP decision on deepening the reform of some major issues" has been purposed, in which instructed that private capital would be allowed to invest commercial banks. China’s banking industry will be further opened to private capital. The establishment of a large number of new private banks in China will mean that banks are no longer the people previously considered to be "safe". Establishing an explicit deposit insurance system as soon as possible in China under the requirement of keep the financial environment stable and ensure the future development of commercial banks.This paper begins with the discussion on the current financial situation in China, and analyses the main problems China’s financial industry determines, and thus pointing out that establishing explicit deposit insurance system is one of the important ways to solve those issues. Then, this paper theoretically summarizes the definition, classification and function of deposit insurance system. Base on this, this paper describes the developments and characteristics of the deposit insurance system in the United States, Germany and Japan as examples. And then this paper provides an analysis of the ungent necessity of establishing explicit deposit insurance system in China, and based on the principal of establishing explicit deposit insurance system in China, this paper addressed several proposals from aspects of system design and operation environment in China. (CLC:F840)...