Research On Deposit Insurance Pricing Based On Responsibility Bearing

As a regulating means, deposit insurance system can resist bank run risk and protect depositor eventually. Specialized deposit insurance agency (usually the Deposit Insurance Corporation) raises insurance fund by collecting premiums, and reasonable deposit insurance premium is the important guarantee for deposit insurance system to be operated steadily. There are thousands of factors to influence the level of deposit insurance premium, but we mainly selected the following four aspects, regulation forbearance, premium's hierarchy, default correlation between banks, and moral risk inhibition in the insurance market, to design insurance terms respectively. Combined with responsibility born by deposit insurance company, we induced different pricing methods. Research results are summarized as below:(1) If the bank insured is incapable to pay deposit on due time, it will not be settled immediately during the range of regulatory forbearance, but it will be subsidized by deposit insurance corporation to run on until the end of capital extension. However, if the bank is still insolvent with its assets again on the capital extension end, then it will be liquidated. Based on the above hypothesis, we constructed a deposit insurance pricing model with capital extension under regulatory forbearance. It depicted the influence on deposit insurance price by regulatory forbearance and capital extension rigorously. The conclusion indicates that the more the regulatory forbearance or the longer the capital extension, the higher the deposit insurance premium. At last, an empirical analysis was presented with the model constructed.(2) Along with market discipline improving gradually, the necessity to depict banks'loss risk and its layer structure elaborately is becoming more and more necessary. It is beneficial for insurance company to formulate appropriate deposit insurance premia according to specific risk responsibility. Therefore, we introduced loss bearing levels. It means that loss responsibility born by insurance company is divided into several levels and insurance company bears appointed range loss responsibility in the contract for insured banks on particular level.Then we constructed deposit insurance pricing model on different loss bearing levels. The conclusion indicates that the lower the loss bearing level's limit, the higher the deposit insurance premium. (3) Business within bank network system causes that banks'debt default has certain contagion effect. In order to detect influence on deposit insurance premium by default contagion among banks, we used the insured bank's default density to reflect a single bank's default probability and used Copula function to depict correlation of banks'default distribution. Then we constructed a deposit insurance pricing model considering default relevance among banks. Empirical conclusion indicates that the more default density, the higher the deposit insurance premium; and deposit insurance premium is proportional to the degree of default relevance among banks.(4) Within the "Double Liability" deposit insurance system, if the insured banks bankrupt, their shareholders need to take some extra responsibility. This prevents "moral hazard" and "adverse selection" to some extent in deposit insurance system and incentives shareholders of insured banks to monitor banks'risk. We generalized Merton deposit insurance pricing model by considering bankruptcy cost. And then, we used responsibility undertaken by shareholders of insured banks when banks bankrupt to reflect the extra responsibility in "Double Liability". Furtherly, we obtained a deposit insurance pricing model with bankruptcy cost under "Double Liability".Theoretical model and numerical analysis show that the higher the bankruptcy cost, the more the deposit insurance premium, and the higher the extra liability, the less the deposit insurance premium.