Time to launch deposit insurance

The interest rate marketization and the completion of financial market complement each other.

China's economists have called for a quick launch of a deposit insurance system, which they said would reduce potential default risks and help drive market-oriented interest rate reform for commercial banks.

"Now is the time to establish insurance for depositors" with accounts in commercial banks, Zheng Xinli, deputy head of the economic sub-committee of the National Committee of the Chinese People's Political Consultative Conference, said.

Following three interest rate hikes in 2011, the one-year benchmark deposit rate stands at 3.5 percent, while the loan rate 6.56 percent, yielding an interest margin of 3.06 percent.

Compared with banking systems in free-market, developed economies, China has a relatively high interest margin. That margin did much to lift banks' total assets to 119 trillion yuan (18.84 trillion dollars) by the end of last year, according to Zhang Jianhua, chief of the research bureau of the People's Bank of China, the central bank.

"Once bank interest rates can float freely on a market basis, the interest margin is expected to contract under competition, and it may shrink lenders' profits," said Zhang, adding "Bankruptcy is normal in a competitive situation, so an insurance system is necessary to protect depositors' assets."

Commercial banks have to face various kinds of risks which interest rate marketization may bring about. Wei Jianing, deputy head of the macroeconomic research department at the Development Research Center of the State Council, said that allowing private capital to invest in the banking system might accelerate the move to market-oriented interest rates.