China’s deposit
insurance scheme was established in 2015 and was first tested in 2019 when
Baoshang Bank was formally declared insolvent. This article provides the first
analysis to scrutinise both the legal framework and the operation of the
deposit insurance scheme in China. Specifically, the article examines the
implementation of China’s deposit insurance scheme in two recent events, the
insolvency of Baoshang Bank and the collective bank runs taking place in Henan
and Anhui provinces, which have not been extensively covered by existing
literature. The findings of this article affirm that the current deposit
insurance scheme does provide a fundamental level of protection to depositors.
However, many uncertainties and weaknesses remain, particularly regarding the
difficulty of initiating depositor compensation, the uncertain function of
deposit insurance funds, the vague rights and responsibilities of the Chinese
Deposit Insurance Fund Management Corporation, and the maximum level of
payment. Moreover, there are two barriers pinpointed which may substantially
hinder the development of the Chinese deposit insurance scheme. First,
traditional beliefs in state guarantees for banks and policies aimed at
maintaining social stability create an environment where banks in China may
rely on implicit state support. Second, the unsound bank insolvency mechanism
complicates the depositor compensation process and undermines depositor
confidence in China’s deposit insurance scheme.