Latest Cover Story | The Next Step for Deposit Insurance (AI Translation)
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This article was translated from Chinese using AI. The translation may contain inaccuracies. Click the button on the right to hide or reveal the original version.
2025年5月20日，北京，市民经过中国人民银行总行大楼前。从中国的实践看，存款保险基金成立之初就由人民银行承担管理职责。图：蒋启明/中新社/视觉中国
文｜财新周刊 丁锋 张宇哲
By Caixin Weekly’s Ding Feng and Zhang Yuzhe
文｜财新周刊 丁锋 张宇哲
By Caixin Weekly’s Ding Feng and Zhang Yuzhe
2025年5月初，包商银行改革重组后设立的蒙商银行披露2024年财报，剔除因吸收合并12家村镇银行而计提预计损失的影响后，实现净利润1.8亿元，同比增65.2%，连续四年实现盈利。从资产质量和风险抵补能力看，2024年末不良贷款率1.02%，较年初下降1.22个百分点；拨备覆盖率299%，较年初上升104个百分点。这意味着包商银行的风险化解有效，经营持续正常化，自我造血能力逐步形成。
In early May 2025, Mengshang Bank, established after the reform and restructuring of Baoshang Bank, released its 2024 annual report. Excluding the impact of estimated losses from the absorption and merger of 12 rural banks, the bank reported a net profit of 180 million yuan, representing a year-on-year increase of 65.2% and marking its fourth consecutive year of profitability. In terms of asset quality and risk mitigation capacity, by the end of 2024, the non-performing loan (NPL) ratio had dropped to 1.02%, a decrease of 1.22 percentage points from the beginning of the year; the provision coverage ratio climbed to 299%, up 104 percentage points year-to-date. These figures indicate that the risk resolution at Baoshang Bank has proven effective, operations are steadily returning to normal, and the bank is gradually developing a sustainable internal profit-generating capacity.
包商银行是新中国成立以来第一宗真正意义上的银行破产退出案例。2019年处置包商银行，也是2015年存款保险制度实施四年后存款保险基金的第一次使用，通过“接管+收购承接+破产清算”的方式，实现了商业银行的市场退出、平稳化解风险。在此过程中，存款保险基金管理公司（下称“存保公司”）应运而生。包商银行实践是中国建立健全金融机构风险处置和市场退出机制的重要尝试，为后续的金融风险处置提供了宝贵经验。
Baoshang Bank represents the first true case of a bank bankruptcy and exit in China since the founding of the People’s Republic. The 2019 resolution of Baoshang Bank also marked the first use of the deposit insurance fund in the four years since the deposit insurance system was implemented in 2015. The approach combined regulatory takeover, acquisition and assumption, and bankruptcy liquidation, enabling the orderly exit of the commercial bank from the market while safeguarding financial stability and risk mitigation. In this process, the Deposit Insurance Fund Management Company (hereinafter referred to as the “Deposit Insurance Company”) was established. The Baoshang Bank case constitutes a significant attempt in China’s ongoing efforts to build and improve mechanisms for financial institution risk resolution and orderly market exit, offering valuable experience for managing future financial risks.
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Caixin is acclaimed for its high-quality, investigative journalism. This section offers you a glimpse into Caixin’s flagship Chinese-language magazine, Caixin Weekly, via AI translation. The English translation may contain inaccuracies.
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Latest Cover Story | The Next Step for Deposit Insurance (AI Translation)
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- China’s deposit insurance system, established in 2015, now covers 3,761 institutions and 99% of depositors, with 373.2 billion yuan in cumulative premiums but only 69.8 billion yuan remaining as of end-2024 due to major bank resolutions.
- Case studies like Baoshang Bank’s bankruptcy and Mengshang Bank’s subsequent recovery highlight the effectiveness but high cost of the deposit insurance fund in managing systemic risk; early intervention and legal clarity remain weaknesses.
- Calls are growing for a Deposit Insurance Law to strengthen early risk correction, clarify regulatory roles, secure backup financing, and integrate deposit insurance into China’s broader financial safety net.
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Explore the story in 3 minutes
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Who’s Who
- Baoshang Bank
- Baoshang Bank was the first true bankruptcy case of a bank in modern China. In 2019, it was taken over due to severe credit risks, marking the first use of China's deposit insurance fund. The risk resolution involved takeovers, asset transfers, and eventual market exit. Its restructuring led to the establishment of Mengshang Bank, which has since achieved steady profitability, demonstrating the effectiveness of China’s evolving financial risk management and market exit mechanisms.
- Mengshang Bank
- Mengshang Bank was established following the restructuring and reform of Baoshang Bank, China’s first true bank bankruptcy case. After absorbing 12 rural banks, its 2024 net profit reached RMB 180 million, up 65.2% year-on-year, marking four consecutive years of profitability. As of end-2024, its non-performing loan ratio dropped to 1.02% and provision coverage rose to 299%, indicating effective risk resolution and sustainable operations.
- Huishang Bank
- According to the article, during the resolution of Baoshang Bank's risks, the deposit insurance fund participated in establishing Mengshang Bank and also invested in Huishang Bank by subscribing to its shares (spending 8.89 billion yuan). This facilitated the acquisition of relevant assets, liabilities, and business of Baoshang Bank, ensuring smooth risk disposal and financial service continuity.
- Yingkou Coastal Bank
- Yingkou Coastal Bank was one of the high-risk institutions in Liaoning Province whose risks were addressed through a government-led merger. In 2021, it was merged into Liaoshen Bank, alongside Liaoyang Bank, with support from the deposit insurance fund. This restructuring was mainly driven by local state-owned capital, but the deposit insurance fund was involved with a limited shareholding, focusing on governance improvement and proactive intervention.
- Liaoyang Bank
- Liaoyang Bank was a high-risk institution in Liaoning Province that was merged into Liaoshen Bank during regional financial risk resolution in 2021, with participation from the deposit insurance fund. In 2022, its assets, staff, and deposits were taken over by Shenyang Rural Commercial Bank. The risk resolution for Liaoyang Bank involved significant financial support, with expenditures reported at around 36.86 billion yuan.
- Liaoshen Bank
- Liaoshen Bank was established in 2021, led by the Liaoning provincial government to merge and resolve risks of high-risk local city commercial banks like Yingkou Coastal Bank and Liaoyang Bank. Seven local state-owned enterprises in Liaoning, led by Liaoning Financial Holding Group, hold a 95% stake, while the deposit insurance fund manager (China’s deposit insurance company) owns 5%. However, Liaoshen Bank has not introduced a genuine strategic investor.
- Liaoning Financial Holdings Group Co., Ltd.
- Liaoning Financial Holdings Group Co., Ltd. is wholly owned by the Liaoning Provincial Department of Finance and, as of 2021, was the largest shareholder of LiaoShen Bank, holding a 52.5% stake. It represents one of seven local state-owned enterprises in Liaoning that collectively owned 95% of LiaoShen Bank’s equity after the bank was established to resolve regional banking risks in Liaoning province.
- Zhongwang Group
- According to the article, Zhongwang Group is a private enterprise that once controlled and drained the resources of Liaoyang Rural Commercial Bank ("辽阳农商行"). In 2022, the risk disposal of Liaoyang Rural Commercial Bank, previously under Zhongwang Group's control, was undertaken by authorities, with Shenyang Rural Commercial Bank taking over its branches, employees, and deposits.
- Liaoyang Rural Commercial Bank
- Liaoyang Rural Commercial Bank, once controlled and hollowed out by the private Zhongwang Group, underwent risk resolution in 2022. In July of that year, Shenyang Rural Commercial Bank took over Liaoyang Rural Commercial Bank and its Taizihe Village Bank branches, staff, and deposits. The risk resolution expenditure for Liaoyang Rural Commercial Bank was approximately 36.856 billion yuan, as disclosed by the People’s Bank of China.
- Shenyang Rural Commercial Bank
- According to the article, in July 2022, Shenyang Rural Commercial Bank took over the branches, personnel, and deposits of Liaoyang Rural Commercial Bank and its subsidiary Taizihe Village Bank as part of a risk resolution process initiated by Liaoning Province. This action aimed to address the risks associated with Liaoyang Rural Commercial Bank, which had previously been hollowed out by a private enterprise.
- Taizihe Village Bank
- According to the article, Taizihe Village Bank was indirectly involved in a risk resolution case in 2022. Liaoyang Rural Commercial Bank (controlled and hollowed out by the private enterprise Zhongwang Group) was resolved that year, with Shenyang Rural Commercial Bank taking over its outlets, staff, and deposits—including those of Taizihe Village Bank in which Liaoyang Rural Commercial Bank held shares.
- Federal Deposit Insurance Corporation (FDIC)
- The Federal Deposit Insurance Corporation (FDIC) is an independent U.S. government agency responsible for insuring deposits at commercial banks and savings institutions. It was cited in the article as an international benchmark for risk minimization and effective bank failure resolution. The FDIC developed mature procedures for crisis response, including Prompt Corrective Action (PCA) mechanisms, and funds itself from insurance premiums with strong backup financing options.
- Federal Reserve
- According to the article, the Federal Reserve (Fed) is referenced as the U.S. central bank and the "lender of last resort." In the U.S. system, the Fed works alongside the Federal Deposit Insurance Corporation (FDIC), the Office of the Comptroller of the Currency (OCC), and the National Credit Union Administration (NCUA) to ensure financial stability, support deposit insurance mechanisms, and provide emergency funding when necessary.
- Office of the Comptroller of the Currency (OCC)
- The article briefly mentions the Office of the Comptroller of the Currency (OCC) as one of the key institutions that, together with the Federal Reserve, the FDIC, and the National Credit Union Administration (NCUA), jointly regulate the U.S. banking industry. The OCC is responsible for supervising and regulating national banks and federal savings associations in the United States.
- National Credit Union Administration (NCUA)
- The National Credit Union Administration (NCUA) is mentioned in the article as one of the key U.S. agencies that jointly regulate the banking industry, along with the FDIC, the Federal Reserve, and the Office of the Comptroller of the Currency (OCC). NCUA is responsible for supervising and insuring federal credit unions in the United States, helping to ensure financial stability and protect credit union members’ deposits.
- Hainan Development Bank
- Hainan Development Bank, closed in 1998, serves as an example of the complexities involved in the market exit of financial institutions in China. Its liquidation process lasted more than 20 years, highlighting past institutional deficiencies. Compared to Hainan Development Bank, the orderly resolution of Baoshang Bank demonstrated that banks can exit the market in an orderly manner, reflecting improved risk resolution mechanisms in China’s financial system.
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What Happened When
- May 1, 2015：
- Implementation of the 'Deposit Insurance Regulation' and official founding of China's deposit insurance system.
- 2015：
- Deposit insurance system started; the deposit insurance system was created; no specialist institution yet.
- By the end of 2015：
- China’s deposit insurance fund balance reached 3.1 billion yuan.
- 2016：
- Risk-based premium mechanism implemented for deposit insurance.
- By the end of 2016：
- Deposit insurance fund balance reached 23.8 billion yuan.
- 2017：
- People’s Bank of China began exploring early corrective measures for insured institutions.
- By the end of 2017：
- Deposit insurance fund balance reached 48.0 billion yuan.
- December 2017：
- IMF and World Bank concluded China’s deposit insurance system was established in line with key international principles.
- August 2018：
- Deposit insurance fund balance reached 82.1 billion yuan.
- May 24, 2019：
- Baoshang Bank was taken over by China’s central bank and the then China Banking and Insurance Regulatory Commission due to severe credit risks.
- 2019：
- Deposit Insurance Company established to handle Baoshang Bank risk resolution. Baoshang Bank’s bankruptcy and exit—first bank bankruptcy and exit in the PRC. First use of deposit insurance fund (four years after 2015 implementation).
- End of 2019：
- Deposit insurance fund balance reached 121.6 billion yuan.
- 2020：
- Deposit Insurance Company began substantive operations. 67.6 billion yuan used for risk resolution of Baoshang Bank; additional significant fund expenditures commenced.
- By the end of 2020：
- PBOC had conducted 12 rounds of risk monitoring and early warning for banks.
- End of 2020：
- Deposit Insurance Fund provided guarantees for financial stability relending and funding to various banks.
- 2021：
- Liaoning Province established Liaoshen Bank by absorbing Yingkou Coastal Bank and Liaoyang Bank; Deposit Insurance Fund took a 5% minority share.
- May 2021：
- Liaoning Bureau of China Banking and Insurance Regulatory Commission approved shareholding structure for Liaoshen Bank.
- August 2021：
- Baoshang Bank’s bankruptcy liquidation process concluded, allowing for an orderly market exit.
- 2022：
- Liaoning Province addressed risks at Liaoyang Rural Commercial Bank. Pilot programs for stricter early correction across 19 provinces launched.
- 2022：
- Major deposit insurance expenditures included 36.856 billion yuan for Liaoyang Rural Commercial Bank and 30 billion yuan in special purpose loans for Liaoning Province.
- July 2022：
- Shenyang Rural Commercial Bank took over branches, employees, and deposits of Liaoyang Rural Commercial Bank and Taizihe Village Bank.
- October 2023：
- Central Financial Work Conference called for improving an early correction mechanism for financial risks with strict constraints.
- End of 2023：
- 234 banks had been removed from the early warning list (92%)—over 80% exited the list within two quarters of being flagged.
- End of 2023：
- IADI data: Out of 105 deposit insurance agencies, 89 were independent legal entities; 9 affiliated with central banks, 8 by banking associations, 4 by supervisory authorities, 2 under finance ministries.
- 2024：
- China’s Financial Stability Report (2024) released; deposit insurance premiums collected amounted to 61.8831 billion yuan.
- 2024–2025：
- China accelerated work on major financial legislation (Financial Law, Financial Stability Law, PBOC Law, Commercial Bank Law, Banking Regulation Law, Enterprise Bankruptcy Law), including risk prevention and resolution provisions.
- By the end of 2024：
- NPL ratio at Mengshang Bank dropped to 1.02%; provision coverage ratio climbed to 299%. China had 3,761 insured institutions, cumulative deposit insurance premiums collected reached 373.2 billion yuan. Deposit insurance fund balance stood at 69.8424 billion yuan. Over 370 billion yuan fund corresponds to 3.3 trillion yuan NPL and 300 trillion yuan in deposits at commercial banks. More than 900 insured institutions had early corrective measures implemented; number of high-risk institutions declined significantly.
- March 2025：
- National People's Congress and CPPCC (Two Sessions) held; proposals to elevate the Deposit Insurance Regulation and accelerate Deposit Insurance Law legislation submitted.
- April 2025：
- Xuan Changneng published article emphasizing the continuous improvement of the deposit insurance system.
- End of April/early May 2025：
- Mengshang Bank released its 2024 annual report.
- Early May 2025：
- Mengshang Bank reported fourth consecutive year of profitability.
- By 2025：
- Deposit insurance system in China had been in place for ten years. Initial operational framework for early correction/fault management established; central bank rates over 3,700 institutions; 11-level risk rating system in use.
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