Chinese deposit insurance to prompt fintech innovation

Author: Ashley Lee | Published: 2 Apr 2015

China’s new deposit insurance scheme is a first step towards liberalising interest rates and allowing bank resolution. It could also spark the evolution of financial technology.

Introduction of deposit insurance is seen by many as a step towards the government allowing financial institutions to fail.

While most believe that state support will remain for the largest banks, the scheme sets up a mechanism that will allow for the exit of smaller financial institutions – including financial technology start-ups.

"A mechanism to allow [the] exit of smaller financial institutions means that you can allow entry of smaller financial institutions," said Douglas Arner, professor at Hong Kong University’s Faculty of Law, in a lecture on innovation in financial technology on April 1.

Aside from bank resolution clarity, market participants have been awaiting these regulations as a precursor to the liberalisation of interest rates.

The interest-rate ceiling – set at 1.3 times...