China plans to deploy billions of renminbi from a national deposit insurance fund to resolve a group of failed provincial banks, setting an important precedent for its approach to a future financial crisis.
The People’s Bank of China has agreed to share the cost of refunding customers with the local government in Henan province, clarifying the circumstances in which the deposit insurance system will pay out, according to two officials aware of the discussions.
The deal between local and national officials is an important step towards strengthening China’s financial system because knowing that insurance will pay out should reduce the incentive for depositors to withdraw their money from vulnerable banks.
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