A Study On The Application Of Deposit Insurance Pricing Methods

In June 2005,The people's bank of china(PBC) released adocument entitled "annual report 2004",which declared that the PBCwould take the construction of deposit insurance system as theirmain work in maintaining the stability of finance in the year of 2005.Because the pricing of deposit insurance is one of the principalcomponents of the deposit insurance system and there is nosystemic study on this field, I take a try to study on it.This paper divides the commercial banks into three types anddesigns three risk-based pricing methods for each one of these threetypes, the three types are listed banks, unlisted banks with creditratings and unlisted banks without credit ratings. The methodsdesigned for the banks can also applied to the financial institutionswhich have deposits.This paper starts from the deposit insurance pricing of the listedbanks and expands this pricing method to the unlisted banks bymodifying the prerequisite. In the following this paper represents theexpected loss pricing method from the point of practice. At last all thepricing methods are compared to find out a pricing method suit forChina's circumstance.This paper has also been divided into five chapters. The firstchapter is an introduction. The second chapter concerns with thepricing methods such as Merton model and Ronn-Verma Modelwhich could only applied to the listed banks, an application ofRonn-Verma model has been given in this chapter. At the last of thischapter the insurance premium of the five banks that are listed in themainland stock exchange market has been given. The third chapterlays out a method called Pennacchi Model which can in principle beapplied to all banks. The forth chapter represents the expected losspricing model and shows the reader how to measure the twoprincipal variables of the expected loss pricing method, in the end ofthis chapter, The author introduce the SCORING model which isbeing used by the Canada Deposit Insurance Corporation. Someconclusion and recommendation has been given in the fifth chapter,which is the last chapter of this paper.The research method of this paper is analyzing and synthesizing.The object of this study is trying to list all the pricing methods whichare probably available to China's condition and aims to provideguidelines for pricing deposit insurance for various banks usingdifferent pricing methods.The innovation of this paper can be represented as follow: It'sthe first time that the systemic study of deposit insurance pricing wasgiven;A new calculation method of Ronn-Verma model has beendiscovered by utilizing the Maple Software;It's the first time theinsurance premium of the banks which are listed on mainland's stockmarket was calculated;Discovered that the insurance premium ofjoint-stock commercial banks (JSCBs) and city commercial banks(CCBs) could be less than the state-owned banks;Discovered thatthe banks in the same catalogue could have different insurancepremium, which means that one bank's premium could be 10 timesbigger than the other one;Discovered that the premium suiting forChina's condition should be several times bigger than the mostdeveloped countries.