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Right time to launch deposit insurance

IT'S a good time for China to launch its deposit insurance scheme to counter the financial crisis, according to the central bank.

"The current financial crisis showed that a pre-established deposit insurance scheme is the best means to counter the crisis," Wang Cong, Yang Mingqi and Liu Qin from the People's Bank of China's Financial Stability Bureau wrote in an article published in the central bank affiliate, Financial News, yesterday.

The article added launching China's deposit insurance scheme now won't attract high costs. A deposit insurance scheme is designed to protect less financially sophisticated depositors and to contribute to a country's financial stability.

China's economy can maintain a stable and relatively fast growth for the foreseeable future, and there won't be a large number of bankruptcies by local financial institutions in the short term.

China can choose to fully insure all deposits temporarily to boost confidence in a financial crisis, and impose appropriate ceilings on the amounts insured when markets recover, the article said.

The State Council, China's Cabinet, has received plans for a deposit insurance system and may introduce it this year to boost confidence in the country's financial system, Zhang Jianhua, head of research at the central bank, said in November.

China started research on the scheme in 1997 and has been planning for it since 2003.

The scheme was born in the United States in 1930s and has been popular in Europe since 1970.


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