Research Of The Inhibition Effect Of Differential Rate Pricing On Moral Hazard Of Deposit Insurance System

In 1930s, the financial environment of United States was very turbulent, as the consequence of the Economic Crisis, the number of the failing banks had increased more than 1000 per year. To stabilize the financial system and restore the people's confidence for the banks, the federal government put forward a series of policies and measures that the Deposit Insurance System which set up in 1933 was regarded as a most effective arrangement.A Deposit Insurance System prevents the loss of depositors as the bank goes bankrupt. It functions the same as insurance for individuals that banks regularly contribute to a fund, from which money will be drawn to cover depositor losses if a bank cannot repay its debts. The system allows insolvent banks to be wound down in a controlled and orderly way with minimum impact on other financial institutions, thus keeping a failure from wreaking havoc on the financial market. This system is widely viewed as a prerequisite for a liberal interest rate regime which allows banks to decide their own deposit and lend interest rates.Under the protection of the Deposit Insurance System, the U.S. banking industry has returned to a sustainable state, people's confidence in the financial sector has also gradually recovered. Actions speak louder than words, deposit insurance system is benefit for rebuild the confidence of people and maintaing the financial safety. However, in the 80 years of operation, the defects of the Deposit Insurance System have also highlighted. Among them, the moral hazard that caused by the protection of the insurance system and the information asymmetry has the greatest impact on the function of the Deposit Insurance System. The risk behavior caused by moral hazard is not only accumulated the bank's own risk, but also seriously damaged the entire insurance system.In order to maintain the well operation of the Deposit Insurance System, FDIC has carried the reform of the Deposit Insurance System in various aspect from the view of system designs. Among the various measures, the risk based differentiated rate system has been regarded as the most effective measure to restrain the moral hazard. In spite of the same direction of the transformation between the use of differential pricing methods and the number of the US failures banks, the relationship of the cause and effect between these two changes is not assured. If the relationship of the cause and effect has been ascertained, how is this causal relationship established? This is also a problem that needs to be studied and solved.After more than 20 years of research, we finally began to implement the Deposit Insurance System in 2015 in China. Drawing on the experience of the United States, we should pay attention to prevent the occurrence of moral hazard in the process of implementing this system, and to suppress it by using effective means.Then, Whether differential rate system can effectively restrain the moral hazard, and what is the way to suppress moral hazard, these are the problems that need to be solved.This paper tries to explain the transformation of previous moral hazard and the after in US for the 1994 implementation of the risk-adjust premiums through the empirical analysis, to prove the relationship between the two, also to seek for the way that how the relationship is built. According to the conclusion, this paper proposed some policy recommendations for the future reform of Deposit Insurance System in our country.