The article examines how deposit insurance affects banks in China. After implementing explicit deposit insurance, banks took less risk and had more liquid assets, higher financing costs, and increased non-interest activities. However, these changes reduced the creation of bank liquidity, which is not good for the economy. Over time, the negative impact lessened. To improve the system, different policies should be applied to banks, especially small ones, to support the economy and manage debts effectively. The study shows that deposit insurance can have various effects on banks, influencing their operations and ability to support the economy.