The State Council of the People’s Republic of China Premier Li Keqiang has signed a decree to introduce the programme, which is set to come into force from 1 May.
Passed by the 67th executive meeting of the State Council, the Deposit Insurance Act announced the launch of program covering deposits up to CNY500,000 ($81,433).
This will help minimise financial risks, while protecting the rights and interests of savers.
According to the regulations, based on the situation and potential risks the maximum amount of compensation can be adjusted by the People’s Bank of China, approved by the State Council.
In addition to additional risk rates, the State Council will also approve standard rates for the bank deposit insurance program.
Under the programme, which will cover 99.6% of all savers, all financial institutions will be required to pay insurance premiums into a fund that will be managed by an agency appointed by the State Council.
China’s latest move is expected to bring it a step closer to dismiss the belief of investors that the government will always bail out banks in the country to protect the savings of depositors, the New York Times reported.
Introduction of the new programme will also allow authorities to abolish controls on deposit rates, which are still managed by the government.
Banks are required to pay a deposit insurance fund to be managed by the central bank in order to pay for the programme.
The system excludes foreign banks that are operating in China, and overseas branches of Chinese banks.
Image: China’s new insurance program will cover deposits up to $81,433. Photo: courtesy of Keattikorn/ FreeDigitalPhotos.net
