April 3, 2015 / 3:17 AM / in 3 years

Light touch seen for new Chinese deposit insurance scheme

BEIJING (Reuters) - China’s recently launched deposit insurance scheme is unlikely to be a burden on banks, charging much lower premiums than are levied in other countries, deputy central bank governor Pan Gongsheng said on Friday.

Addressing reporters in Beijing, Pan said the scheme would have a “light” impact on banks, and that it would not favor small banks in attracting deposits.

China announced on Tuesday it will introduce a scheme to insure bank deposits from May 1, ushering in a reform seen as vital to free up the highly protected banking sector.

Tuesday’s announcement did not, however, detail the cost of the deposit insurance premiums.

Some analysts believe that the scheme could benefit smaller banks at the expense of larger ones.

Pan said Beijing had studied the U.S. deposit insurance scheme before rolling out its own, and believed the scheme will also help China better enforce its corporate bankruptcy law.

He said the deposit insurance fund to which banks would contribute could take on a regulatory role in times of trouble by assisting healthy banks take over troubled lenders.

“Through the mode of mergers and acquisitions, it (the deposit insurance scheme) can let other good banks purchase the troubled bank,” Pan said.

Writing by Pete Sweeney; Editing by Paul Tait and Eric Meijer

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