China is to adopt a deposit insurance scheme to better protect the interests of depositors and free up interest rates.
The Legislative Affairs Office of China's State Council published a set of draft regulations containing 23 articles on its website on Sunday to solicit public opinion until December 30, 2014.
Financial institutions will be required to pay insurance premiums and an agency will be set up to manage the money. Domestic banks' overseas branches and foreign banks' China branches are exempt.
The fund will pay maximum compensation of 500,000 yuan (81,500 U.S. dollars) per depositor if a bank suffers insolvency or bankruptcy. Banks will pay indemnity with their own assets to those who deposit more than 500,000 yuan.
The new agency will make detailed rules on how to run the fund.
Deposit insurance is a measure implemented in more than 110 economies to protect depositors, in full or in part, from losses caused by a bank's inability to pay its debts when due.
The deposit insurance scheme is one important component of a financial safety net, China's central bank said.
In addition, the deposit insurance scheme is considered a precondition for China to free up deposit rates -- the last and most important step of interest rate liberalization.
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China solicits public opinions on deposit insurance
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