The Study On The Pricing Model Of Deposit Insurance Based On Risk

In the background of economic globalization, our common goal is how to effectively guard against financial risk and maintain financial stability. Deposit insurance system was established in 1934 in the United States as financial security network to protect the interests of depositors and prevent systemic risk. But the serious drawback of the deposit insurance system is the moral hazard, the risk of the bank can be exposed by the risk based deposit insurance pricing model, so it can reduce the occurrence of moral hazard. When the moral hazard occurred in the United States in America subprime mortgage crisis, banks have the motivation of the regulatory arbitrage and hold mentality of "too big to fail". The U.S. subprime mortgage crisis transform from the liquidity risk to the solvency risk, especially the bankrupt of large financial institutions challenge regulatory ideas for the regulatory authorities. On the basis of the international rules about the pricing of deposit insurance, this paper points out the economic principle for the deposit insurance pricing model based on risk. In the framework of the principle, this paper analysis of the theoretical model of deposit insurance and the practice model for representative countries. Then the paper study the pricing of deposit insurance based on risk in China following the principle, exploring ideas and suggestions further.In this paper, we first point out the relevant theory of the risk-based deposit insurance pricing method and pricing theory. There are two kinds of classical pricing methods including with the option pricing model and the expected loss pricing model. Next, the general economic analysis of risk-based deposit insurance pricing equipped with the mechanism of preventing moral hazard. Because the banks have the incentive to carry out regulatory arbitrage, banks will try to cut costs when facing deposit insurance premium rate. International standards about deposit insurance although affirm risk-based deposit insurance can reduce the behavior of moral hazard, ignoring the internal nature of the regulatory arbitrage, some banks have psychological of "too big to fail". In order to solve problem, we analyze the theorical pricing model and the parcitce pricing model. It founds that the option pricing model is based on the market index and has limitations because of pursuiting of absolute fair pricing. The formula of the expected loss pricing model is not very strict and the results are rough, although it applies to all banks. And through the comparison of the pricing model in representative countries, Sweden’s continuous pricing model can prevent regulatory arbitrage. Italy pricing model has premium adjustment mechanism, so this model can tend to adjust deposit premium for key banks in system.Since China has just set up deposit insurance system, we need to cover all the banks absorbing savings. In fact, there is possibility of regulatory arbitrage in our country. Therefore, it is suggested that the pricing model based on continuous curve. And the same time, considering the social function of rural banks in China, it suggested that the adjustment of the premium allocation mechanism based on Italy is inclined to rural financial institutions.