Aiming to protect the interests of depositors, China will adopt a deposit insurance scheme that will free up interest rates and secure customers from losses caused by a bank's inability to pay its debts.
Under the new scheme financial institutions will be required to pay insurance premiums and an agency will be set up to manage the money.
Domestic banks' overseas branches and foreign banks' China branches are exempt.
The fund will pay maximum compensation of USD 81,500 per depositor if a bank suffers insolvency or bankruptcy.
Banks will pay indemnity with their own assets to those who deposit more than USD 81,500, state-run Xinhua news agency reported.
The Legislative Affairs Office of China's State Council published a set of draft regulations containing 23 articles on its website today to solicit public opinion until December 30.
The new agency will make detailed rules on how to run the fund.
Deposit insurance is a measure implemented in more than 110 economies to protect depositors, in full or in part, from losses caused by a bank's inability to pay its debts when due.
The deposit insurance scheme is one important component of a financial safety net, China's central bank said.
In addition, the deposit insurance scheme is considered a precondition for China to free up deposit rates - the last and most important step of interest rate liberalisation.
