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
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...