Is China's New Deposit Insurance Scheme a Panacea? And Why Now? A Functional Analysis

Abstract

China has recently adopted an explicit deposit insurance scheme. This article reviews the key characteristics of China’s explicit system of deposit insurance and tries to unveil the reasoning behind the establishment of this scheme to date. From a comparative angle, the article looks into some actual practices providing incentives for all stakeholders to keep the financial system sound. While this article discerns some benefits an explicit deposit insurance scheme can bring to a country’s financial market and financial system, it also notes the importance of the failure resolution mechanism, which makes a financial safety net work well.

Keywords: Bank runs, comparative economics, deposit insurance scheme