Liu Shiyu, Assistant with Governor of the People's Bank of China, said recently in Beijing the internal conditions and external environment have been "all right" to have the deposit insurance system in place. It is a "strategic task" for China��s financial reform, he added.

Liu cited that China's deposit-taking financial institutions are structured with diversified, multi-layered and commercialized way. These entities now hold 92.59 percent of the total assets of commercial financial institutions while their deposits accounted for 86.3 percent of the total liabilities by the end of 2004. The security and stability of their operation is the basis of the financial and economic security in China.

Liu thinks the steady progress on the reform of state-owned commercial banks, the legal system improvement, and the increasing compliance of China's accounting practice with the international norms have combined to lay a sound foundation for deposit insurance system.

He briefed the central bank's "initial consideration" on the framework of the proposed deposit insurance mechanism.

First, it is an inclusive program which holds all deposit-taking financial institutions obligated to join. However, the rules governing foreign-funded banks are subject to further studies.

Secondly, deposit payoff will secure the interest of depositors at a standard higher than the international empirical data to make sure that a full-amount payoff will cover a majority of depositors in the case of bankruptcy of the institution.

Thirdly, the premium rate of the deposit insurance should at least partly depend on the risk exposure of a financial institution.

Fourthly, deposit insurance fund will be under the custody of a special office until deposit insurance companies are founded.

By People's Daily Online