The Deposit Insurance Pricing And Institutional Research

In early 1930s,the foundation of FDIC marked the beginning of modern deposit insurance system.As one of the three pillars of financial safety net,the deposit insurance system plays an important role in preventing banks run,protecting the interests of depositors and maintaining the stability of financial systems.After many years of exploration,Chinese Government started to implement the Deposit Insurance Act from May 2015,which means the foundation of deposit insurance system in China.It becomes a significant issue to decide a reasonable premium under the background of economic new normal.Especially in recent ten years,the finance industry have had stood the test of subprime crisis in 2008 and stock market crash in 2015 successively.Therefore,how to introduce regulatory audit,regulatory penalty and forbearance into the framework of deposit insurance pricing is quite meaningful in theory and practice.On the basis of combining the relevant literature,this paper makes a study of deposit insurance price from theoretical aspect and empirical aspect.This paper also builds a theoretical model to study how to lower bank risk in post deposit insurance institution era.The main findings in this paper are as follows:Initially,this paper considers a differentiated premium based on penalty of bank in the discrete case.The results show that it is useful for differentiated premium to mitigate the moral hazard of banks.In this situation,not all banks only pursue high return projects.They will take the impact of success probability of investment into decision.In addition,this paper builds continuous model to price deposit insurance in the framework of regulatory audit,regulatory penalty and forbearance.Under the linear regulatory penalty,we get the analytical solution of deposit insurance price.The results show that the larger the forbearance coefficient is,the higher the deposit insurance price is.The reason may be that the relaxation of regulatory standards leads to the amplification of bank operation risk,while the amplification of bank operation risk leads to the improvement of premium.The larger the regulatory intensity is,the higher the deposit insurance price is.The reason may be that the improvement of audit intensity directly leads to the increasing of bank operation costs.However,the premium will becomes lower when regulatory intensity gets larger.This paper also analyzes the relationship between regulatory audit,regulatory penalty,forbearance and the leverage of bank.The comparative static analysis finds that the risk preference of bank will get lower if there is no regulatory forbearance.For some special asset-savings ratios,the risk preference of bank is higher when the degree of the regulatory forbearance is larger.However,the risk preference of bank is higher with the audit intensity increasing.If regulators take penalty measures,then the risk preference of bank is lower with asset-savings ratios getting lower.The more strict measures the regulators take,the lower risk preference the banks prefer.The results also show that audit cost has a limit impact on bank operation leverage.There are some other interesting findings.The deposit insurance pricing model in this paper can realize counter cyclical regulation partly.When the economic is upward,the regulator can design a large forbearance value and increase the default threshold.At the same time,the regulator should enlarge the regulation intensity,for the purpose of finding troubled banks quickly and efficiently.Besides,the regulator should punish the troubled banks heavily.However,if the economic is downturn,the regulator can set up a small forbearance value and decrease the default threshold.Moreover,this paper estimates the stock volatility of banks by using GARCH(1,1)model and gets the asset volatility of banks by calculating.This paper also considers the impacts of the subprime crisis in 2008 and stock market crash in 2015.In order to observe the impact of these two events to the premium of deposit insurance,this paper divides four intervals to calculate each bank's premium of deposit insurance,2008-2015,2008-2014,2009-2014 and 2009-2015.The results show that these two events have the largest impact on the premium of city banks,while they have limited impact on joint-stock banks and almost have no impact on state-owned banks.Finally,this paper designs a new kind of debt contingent convertible performance sensitive debt(CPSD)under the background of post era of deposit insurance institute in China.By using equilibrium theory,this paper gives analytical solution of the value of CPSD,the value of SB and the value of equity respectively based on endogenous default boundary.This paper also gets the optimal capital structure by maximizing the value of the bank.By comparative static analysis and numerical simulation,we find that CPSD plays an important role in post era of deposit insurance institute.The results explain that CPSD is a valuable security in increasing the value of tax shields while keeping default risk in a low level.The firm value is increased due to the issue of CPSD.Using CPSD financing can alleviate or even resolve the problem of debt overhang,but may enhance the asset substitution incentives.