The Pricing Of Deposit Insurance And Its Application In China

As the rapid development of China's economy, the residents'disposable income has increased rapidly. There are more and more financial institutions which absorb deposits. As the emerging of financial derivatives, the financial risks have been enlarged for many times. How to protect the depositors' security of their accounts and maintain the stability of the financial system has become one of the most important subjects for our financial regulators.Deposit insurance system is a kind of system arrangement. The deposit financial institutions pay the required premiums regularly to the deposit insurance institution, and receive the compensation from the insurance company,once their asset value drop below the standard that required. The insurance company can also take actions to do liquidation of the financial institution if necessary. These arrangements are in order to protect the interests of the depositors, maintain the stability of the financial system, and enhance market's confidence. The core of the system is the determination of the insurance rate. Many studies have indicated that the reasonable rates of the insurance can reduce the probability of the moral hazard and adverse selection. This paper will firstly introduce the theories and practices of deposit insurance system. then analyze our country's situation, and give some policy suggestions at last.This paper firstly introduce the theories of the deposit insurance pricing model, including the deposit insurance pricing model which separately based on the B-S option price formula, the banks'financial data, the difference between the banks'two layer deposit's rates and the lose of the expectation. After that, this paper introduces the practices of the deposit insurance pricing, such as in the USA, Canada and Taiwan. Then adopt the Merton(1977) model and the model based on the lose of expectation to calculate the insurance rate of some commercial banks in our country, and make some analysis for the outcome. At last suggest adopting the model based on the lose of expectation to calculate the insurance rate in our country, and divide our country's commercial bank into four levels to execute the different deposit insurance rate.