The PBOC has reportedly established an independent entity to manage the deposit insurance fund, which was set up in 2015 and has so far accumulated 100 billion yuan.
The PBOC (People’s Bank of China) has set up a company to manage a CNY 100 billion (USD 14.5 billion) fund to protect depositor savings at financial institutions.
According to a Caixin report, a company ‘Deposit Insurance Fund Management Co Ltd’ was established on Friday, the same day regulators took control of Baoshang Bank, with registered capital of CNY 10 billion, and with PBOC financial stability bureau deputy head Huang Xiaolong as its legal representative and executive director.
Caixin said it learned that the PBOC sped up the establishment of the new deposit insurance fund management company partly due to the Baoshang Bank situation, which regulators said was the result of a “severe credit risk” posed by the bank.
The one-year takeover, during which principle and interest on personal savings accounts will be fully guaranteed, is aimed at protecting depositors and other clients.
The PBOC established a deposit insurance fund in 2015 and has been collecting insurance premiums from financial institutions since. In the event that a financial institution became insolvent, the fund will be used to repay each depositor up to CNY 500,000 in compensation.
As at end-2018, the deposit insurance fund amounted to CNY 100 billion. None of this has been spent so far and until now, there has not been an independent entity to manage the fund.
Caixin said the PBOC had expected to establish such an entity when the fund grew to CNY 200 billion, but multiple legislators and advisers proposed speeding its establishment and making the new entity play a central role in cleaning up financial institutions’ risks.
The deposit insurance fund could inject capital into Baoshang Bank, acquire liabilities of the bank and explore a market-based financial risk disposal mechanism, people close to the matter told Caixin.
Earlier this year, the PBOC also proposed the establishment of an independent deposit insurance agency tasked with helping failed banks exit the market, limiting depositor losses, and preventing contagion effects when serious credit risk events arise.