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I've read this CNN article on protests against Chinese banks "freezing" their customers' deposits for months (and watched the video inside too), but there's no mention of any deposit insurance scheme in China.

However, such a scheme appears to have been adopted in 2015. (The relevant regs are even published in English.)

On the other hand, a 2018 Fitch article was suggesting that the funds collected until then might have been insufficient to cover even a single large bank failure.

The deposit insurance fund had a balance of CNY81.5 billion as of end-September 2018. This amount represented 0.045% of total bank deposits in the same month, and may not be sufficient to support DGS pay-outs in an event of a large bank failure.

Has this fund been used in practice to pay any claims insofar? Or are the regulations such that it's difficult for claimants to get repaid from there? (E.g. is the bank practice of "freezing" customer accounts related to avoiding using this deposit insurance mechanism?)

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    A quick Google search shows that they clearly do have one since 2015.
    – Brian Z
    Jul 11 at 16:28
  • Note that having a function deposit insurance scheme does not imply that claims are paid out from it on a regular basis. Germany has a deposit guarantee up to 100k Euros, has had it for decades and afaik it hasen't paid out anything in decades. At least partially that is because it works so well, so in all siutations that came close some other solution was found.
    – quarague
    Jul 12 at 7:29
  • News is that "The four banks that were the focus of the protests are believed to have frozen a total of 39bn yuan ($5.8bn; £4.9bn) of deposits." I suppose more funds were accumulated by the DGS in the 3.5 years since that Fitch report, but still that "frozen" amount is like half the figure reported as accumulated in insurance by 2018...
    – Fizz
    Jul 12 at 7:41

3 Answers 3

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This China Daily article, from May 2019, claims that "no trigger event has been reported so far", with regards the People's Bank of China's deposit insurance scheme.

Like most schemes of this sort, it's up to the regulator to decide whether deposits have been lost, and if so what to do about it. The State Council and provincial governments have very broad powers in this respect, as discussed in the Banking Supervision Law of the PRC, in particular Articles 38 and 39 state that

Article 38 Where a banking financial institution has already had or may have a credit crisis, which seriously impairs the legitimate rights and interests of the depositors and other clients, the banking supervision institution of the State Council may take over the banking financial institution or urge it to restructure. The taking over and restructure shall be implemented in accordance with the relevant laws and the regulations of the State Council.

Article 39 Where a banking financial institution conducts illegal operations or faulty operations and management, and it will seriously impair the financial order and the interests of the general public unless cancelled, the banking supervision institution of the State Council shall be empowered to cancel it.

These are directly referenced in Article 17 of the Deposit Insurance Regulation, viz.

Article 17 Upon discovering that an institutional policyholder is under the circumstance mentioned in Article 38 or 39 of the Banking Supervision Law of the People's Republic of China , the deposit insurance fund management institution may suggest the banking regulatory authority that it may take corresponding measures according to the law.

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Usually, Central Bank or other authority has to declare that an "insurance event" has happened in order for deposit insurance to kick in.

Usually CB will put the failing bank under external control, give it to another (larger) bank or just revoke banking licence and dissolve it. I know this firsthand because in Russia dozens of banks underwent that procedure in the last decade and I had to recover deposits via insurance at least twice.

But in China, this does not happen. The commercial bank refuses to return deposits to lenders and the central bank refuses to acknowledge that fact and trigger insurance event. So the depositors are stuck in a limbo.

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    Yeah, perusing the Chinese regs, Article 19 has provisions broadly similar to this. I guess the Q remains if it was ever exercised.
    – Fizz
    Jul 11 at 17:04
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On 24 May 2019, the China's Deposit Insurance Co.,Ltd has been established under the order of State Council of the People's Republic of China. This company, authorised capital 10 billion, takes over the deposit insurance in China. On the same day, Baoshang Bank Co.,Ltd. was announced to have credit risk and then undertook by CCB. The new established deposit insurance company provided some funding to pay the claims.

For the event in Henan, the commercial bank made a fake system to illagelly attract deposits. Hence the deposit insurance company refuses to acknowledge that the deposits de facto are the deposits de jure.

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  • What is a fake system to illegally attract deposits?
    – user253751
    Jul 12 at 13:17
  • @user253751 Technically, these banks are local banks (like the Sparkasse in germany) and are not allowed to get depositors elsewhere. But the controller of these bank made a fake online banking system, allowing them to do so.
    – user43812
    Jul 12 at 14:16
  • Interesting. Do you have a reference for this? In Chinese would be fine too. Managed to find something myself for the 1st para asia.nikkei.com/Spotlight/Caixin/…
    – Fizz
    Jul 13 at 2:43
  • And according to asiafinancial.com/… that Baoshang case was indeed the first time the deposit insurance fund was used. Although this answers my question, it would still be nice to have some reference for the info in your 2nd paragraph.
    – Fizz
    Jul 13 at 2:52
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    @Fizz You can see bloomberg.com/news/articles/2022-05-25/…. In practice, many small banks do the same thing to attract public fund. But this time, the controller of Henan banks just take all the money and run aboard.
    – user43812
    Jul 13 at 10:31

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