Deposit insurance is an important part of modern financial safety net. It has been five years since China formally implemented the deposit insurance system in 2015. The research on whether the current deposit insurance system can effectively reduce the bank’s risk-taking, whether it has other micro impacts on bank assets and liabilities, and the impact on liquidity creation has important reference value for the improvement of financial supervision and deposit insurance system.

This paper selects the micro data of 166 commercial banks in China from 2006 to 2018 to investigate the micro changes in risk, assets and liabilities of China’s commercial banks after the transformation of implicit deposit insurance into explicit deposit insurance, and explores whether these micro changes of banks will have an adverse effect on bank liquidity creation from the perspective of liquidity creation.

The results show that the implementation of deposit insurance leads to the decrease of banks’ risk-taking, and the increase of asset liquidity, financing cost and non-interest operation level. Furthermore, this paper finds that these micro changes inhibit the creation of bank liquidity, which is not conducive to the exertion of bank intermediary function. From the perspective of dynamic effect, the inhibitory effect of deposit insurance system reform on liquidity creation decreases with time.

Based on the above results, this paper suggests that we should implement differentiated policies for some banks on the basis of the existing deposit insurance system design, and encourage them to play the role of liquidity creators to support the real economy; for commercial banks, especially small and medium-sized banks, we should improve the ability of debt management to ensure the stable growth of debt side.

The theoretical and practical contributions of this paper are as follows: First, it expands the micro impact of deposit insurance on banks from risk-taking to micro variables such as asset liquidity, financing cost and non-interest business, so as to enrich the research on the micro impact of deposit insurance. Second, it expands the relevant research on the impact mechanism of deposit insurance on liquidity creation. Third, it has important reference value for further optimizing the deposit insurance system design, preventing financial risks and creating a good policy environment for commercial banks to serve the real economy.