Update | China deposit insurance scheme a big risk as mainland bank shares soar on plan
"This is the most critical, and yet riskiest reform measure ever undertaken," Wei Yao, an analyst at Societe Generale, said
The deposit insurance scheme pitched by China's central bank this week might be designed to lift the burden of financial risk from the government.
But the plan, and the likely follow-up move of liberalising deposit rates, was a major risk in itself, analysts and economists said, at a time when growth is slowing on the mainland.
The proposal from the People’s Bank of China on Sunday called for coverage of household and corporate deposits up to 500,000 yuan (HK$630,850), which would include up to 99.3 per cent of bank accounts on the mainland.
Establishing such a scheme would be a major shift for a system in which the government has implicitly shouldered the brunt of rapidly growing risk.
Deposit insurance would shuffle the onus of responsibility to banks while at the same time diminishing the government’s unspoken guarantee for risk.
“This is the most critical, and yet riskiest reform measure ever undertaken,” Wei Yao, an analyst at Societe Generale, said in a note on Monday.