BOFIT Viikkokatsaus / BOFIT Weekly Review 2015/14
After the introduction of deposit insurance, the PBoC is expected to continue the deregulation of deposit interest rates. The shift to market-based interest rates should increase competition among banks and reduce bank profit margins. Deposit insurance in principle allows banks to fail. So far the state has guaranteed bank deposits by preventing bank insolvencies through bail-outs. Even with the change, however, it is clear the government, which emphasises economic and social stability, would continue keep failed banks on life support. Most of China’s banking sector is still publicly held.