Journal of Applied Finance & Banking

Does China Require an Explicit Deposit Insurance System?

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  • Abstract

    This study indicates that there is no explicit evidence supporting the fact that banks in China lack strength and are exposed to the risk of bankruptcy. That is, the financial industry structure in China is healthy and an increased investment and facilities in this industry should be considered. However, the empirical results of the deposit insurance pricing model show that it is necessary to establish a deposit insurance system for the banks in China as all the estimated deposit insurance premiums are significantly positive. It is suggested, therefore, that an explicit deposit insurance system should be introduced in China. Without establishment, the cost that should be borne by the banks will be shifted to the public and thus lower the operation costs of banks.