[2] Yesterday, the "Deposit Insurance Regulations" drafted by the People's Bank of China were released to the public, set to take effect on May 1st. Following the adjustment of second-home loan policies the day before, the central bank once again stole the headlines. Since the State Council first proposed the deposit insurance system in 1993, it has taken 23 years of twists and turns to reach this point. Even in the past six months, there have been some stories: On October 29 last year, the State Council executive meeting approved the "Deposit Insurance Regulations"; a month later, on November 30, the State Council Legislative Affairs Office released a draft for public comment; on February 17 this year, Premier Li Keqiang signed a State Council order to announce the regulations; on March 31, the regulations were officially released to the public, along with a clear implementation timeline... What day is February 17? It's three days after Valentine's Day, the last working day before the Spring Festival of the Year of the Goat... For the sake of deposit insurance, the Premier really went the extra mile.

[3] According to the definition of the International Association of Deposit Insurers, the main objectives of the deposit insurance system are: to maintain the stability of the banking system, prevent systemic risks, and protect the interests of depositors. In fact, opinions vary across countries on whether the deposit insurance system can effectively fulfill its intended role.

[4] China is a country with a high savings rate, with deposits in banking financial institutions exceeding 120 trillion yuan. Establishing a deposit insurance system creates a new financial safety net, laying the foundation for interest rate liberalization and providing greater protection for people's deposits. This is a sound institutional arrangement, and it is a common choice shared by 113 countries and regions worldwide.

[5] Although deposit insurance increases banks' costs to some extent, it helps enhance the security of the financial system and maintain public confidence and trust in banks, especially as interest rate liberalization progresses. For large banks, deposit insurance helps them gradually shed their de facto "state credit" and become true market entities; for small and medium-sized banks and private banks, deposit insurance serves as a form of "credit enhancement," enabling them to compete more fairly.

[6] An important function of China's deposit insurance system is investor education. The process of advancing deposit insurance is a broad and deep investor education campaign. For ordinary people, the lesson from deposit insurance is that risk and reward go hand in hand; there is no investment with only returns and no risks, not even deposits.

So here's the question: after the implementation of deposit insurance, what does it mean for ordinary people—should 500万 in deposits be split across 10 banks?

1. Will small banks run into trouble?

Indeed, competition in the banking industry is intensifying, and it's possible that a few banks may face operational issues in the future. Large banks are "too big to fail," but what about small and medium-sized banks? Buying car insurance doesn't mean you'll definitely have an accident. The introduction of a deposit insurance system doesn't mean banks will necessarily go bankrupt. As an institutional arrangement, deposit insurance only pays out when a bank faces a crisis or is on the verge of bankruptcy. China has seen bank failures like Hainan Development Bank, but in reality, the likelihood of existing banks going bankrupt is very small. Commercial banks remain the safest financial institutions in China, bar none.

2. Are deposits unsafe?

Since banks have the possibility of bankruptcy and the government no longer provides a "blanket guarantee," does this mean bank deposits are less safe than before? The banking industry itself is about managing risks, dealing with various risks by nature—risk is objective. Deposit insurance makes banking risks more explicit, allowing banks to compete more fully and effectively, boosting the overall efficiency of the banking sector, which in turn enhances its ability to prevent risks. After interest rate liberalization, without a safeguard system, ordinary savers would actually face greater risks; deposit insurance precisely gives depositors peace of mind.

3. Should deposits be split up?

Don't put all your eggs in one basket. Should large deposits be spread across multiple banks? Theoretically, depositing 5 million yuan into 10 different banks is the safest approach. But in reality, using the deposit insurance fund for payouts is a rare event, and such hassle is unnecessary. With 5 million yuan in one bank, you can become a VIP and enjoy various perks. Of course, you shouldn't be too reckless. If a bank offers interest rates significantly higher than the market average to attract deposits, you should be cautious. "Yu'ebao" is not covered by deposit insurance. If anyone tells you its returns are over ten times that of a demand deposit, they're taking advantage of your lack of knowledge.

Fourth, will the premiums be passed on?

The central bank has stated that deposit insurance premiums are paid by the banks, not related to ordinary depositors. Every bank must contribute to the deposit insurance fund to insure their deposits. Some worry that banks will pass these premiums onto depositors. Dear depositor, with your deposits, you hold the power. How could a weaker bank dare to make demands on you? With 4,000 banks nationwide, if you're unhappy, just switch to another! Will banks pass the premiums onto loan customers? Probably not. Taking the internationally low premium rate of 0.05% as China's average rate, the banking industry would need to pay about 60 billion yuan in deposit insurance premiums. This is a drop in the bucket and has little impact on banks.

We are pleased to see that "the deposit insurance premium rate consists of a base rate and a risk-differentiated rate," indicating that a differentiated rate is confirmed. For "good banks" and "bad banks," if a uniform rate is applied without distinction, "good banks" will lack incentives, potentially leading to "adverse selection" in banks and the market, creating moral hazard. It is said that a uniform rate will be implemented initially, but this should only be a transitional measure. Rest assured.

Currently, the lingering "rigid payment" ghost in China's investment and wealth management, along with excessively high risk-free interest rates in the market, is detrimental to income distribution and financial innovation, ultimately harming the public. By establishing deposit insurance and promoting interest rate liberalization, we can gradually lower risk-free interest rates, alleviating the long-standing problem of "abundant but expensive money," which is also beneficial to the capital market.

(Dong Ximiao)