In today's podcast, the central bank announces a draft plan to give people 500,000 yuan worth of protection in case a bank fails.Bank failures are rare in China, but the central bank has finally stepped in with a proposal to establish a deposit insurance system.Similar in design to the U.S.'s Federal Deposit Insurance Corporation, which was created after the Great Depression,the proposal by the PBOC would provide basic insurance for bank deposits both in yuan and foreign-currency.The PBOC's version would offer protection of up to 500,000 yuan per person per bank.The draft plan would create a deposit insurance system that will cover more than 99 percent of all deposits with banks in the country.Banks will have to pay a certain proportion of the deposits they accept to an insurance fund.The draft plan did not specify how many different types of banks will need to pay into the insurance fund.The ratio will mostly range from 0.015 to 0.02 percent of a bank's overall profits, a source close to the situation says.China International Capital Corp., an investment bank, estimated that the contributions would increase bank operating costs by 0.4 percentage points and cut their profits by about 1 percentage point.Last year the banking industry reported net profit of more than 1 trillion yuan.For Caixin Online, this is Diana Bates.
