Banking reform difficult but will benefit all

Reform of China's banking industry is a necessary step taken by Chinese government to let the market play a decisive role in allocating resources, said an article in the Southern Metropolis Daily. Excerpts:

The China Banking Regulatory Commission is making new policies to end the government's protection of and subsidies to the banks step by step, allowing insolvent commercial banks to go bankrupt.

Bankruptcy is normal in developed countries. Chinese depositors, who are accustomed to reliable banks, will face a new banking industry.

If the government continues its protection of the banks, it will be impossible to lift government control over interest rates.

Chinese customers should realize there is no absolute safety of banks. It seems the government-protected banks will not collapse, but it is the customers who actually subsidize the banks while tolerating the exploitation of the artificially controlled interest rate.

The banks will do their best to improve their services for customers and learn to survive in competition. It will not be that easy for banks to simply profit from the interest margins as they do now.

There should be a reliable deposit insurance system as the foundation for the reform of China's banking industry to protect the customers and control the systematic risks of the financial sector.