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The Valuation of Deposit Insurance Premiums Based on a Specific Bank’s Official Default Probability

Shu Ling Chiang & Ming Shann Tsai

Multinational Finance Journal2019article
AJG 1ABDC B
Weight
0.26

What the paper says

This study presents a formula for valuating a deposit insurance (DI) premium based on a specific official default probability. This formula can be used to flexibly determine the DI premium that reflects changes in economic circumstances. We provide a new estimation method to determine the implied asset risk based on the efficient frontier between asset value and asset risk. Doing so avoids the problem for estimating a bank's assets and asset risk using market equity data. Empirical evidence shows current DI premium assumes that banks have too high default rates. We suggest the DI premium should be lower for banks that fully obey the financial supervisory regulations. Doing so should incentivize these banks to decrease their likelihood of default by strictly implementing financial regulations, thus stabilizing financial environment. We also suggest a new dynamic method to help them determine reasonable DI premiums and maintain the target level of DIF reserves.

Cite this paper

@article{shu2019,
  title        = {{The Valuation of Deposit Insurance Premiums Based on a Specific Bank’s Official Default Probability}},
  author       = {Shu Ling Chiang & Ming Shann Tsai},
  journal      = {Multinational Finance Journal},
  year         = {2019},
}

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The Valuation of Deposit Insurance Premiums Based on a Specific Bank’s Official Default Probability

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Evidence weight

0.26

Balanced mode · F 0.40 / M 0.15 / V 0.05 / R 0.40

F · citation impact0.00 × 0.4 = 0.00
M · momentum0.20 × 0.15 = 0.03
V · venue signal0.50 × 0.05 = 0.03
R · text relevance †0.50 × 0.4 = 0.20

† Text relevance is estimated at 0.50 on the detail page — for your query’s actual relevance score, open this paper from a search result.