Deposit Insurance System Operation Pattern And Pricing Research Of China

With the progress of China's financial liberalization and interest rate liberalization,the efficiency of the financial market has been improved greatly.And commercial banks have been faced with more challenges and competition.But at the same time,There will be some banks that can not manage well without strict supervision.They may face elimination because the problem of management mechanism problem and the efficiency of operation.So how to protect small depositors of these banks?How to deal with the fear of bank-run?How to prevent the financial system credit crisis?These are major issues of China's current financial market.Throughout the world experience,deposit insurance system is a good choice.Deposit insurance is a regime that allows various qualified deposit financial institutions together to establish an insurance institution to which deposit institutions as holders pay insurance premium which is a certain percentage of its deposit as deposit insurance reserve.In case member institution suffers operation crisis or bankruptcy,the deposit insurance institution can provide financial rescue or pay depositors in full or part.So far,111 countries or regions have established deposit insurance system.Though different contents exists among deposit insurance systems in different countries,the positive role of deposit insurance system in protecting depositors,improving public confidence in banks and maintaining the stability of bank system has been recognized.This paper focuses on the design of China's deposit insurance system.There are two main research contents:1.The operation pattern of China deposit insurance systemFirst we research on deposit insurance system in the other countries.And then,following the guide of International Association of Deposit Insurers(IADI)and suggestions of the domestic scholars,we analyse China's situation and give the final design of China's deposit insurance system.2.The premium system of deposit insuranceThere are numerous methods to price deposit insurance.How to effectively evaluate the risk of bank is the core problem.Theoretically,deposit insurance premium pricing methods fall into two categories:one is quantitative method based on Black-Scholes Option Pricing Model,the other is expected loss pricing method based on bank rating and capital standard.Both two methods have their virtues and faults.In the first method,deposit insurance is deemed as option,and using option pricing method to determine deposit insurance premium.This method applies complicated quantitative data and models,which renders the pricing relatively objective.However,this method requires effective market data;therefore,it is more suitable for listed banks with well-developed securities market.The second one is a conventional pricing method.It estimates the probability of default and default loss of banks through basic analysis,market data and rating information.In this method,expected loss will be deemed as deposit insurance premium.The second method based on financial information of bank,regulation appraisal,and other index,is more general,not limited to listed banks.However,this method relying on effective regulation and rating system is subjective to a certain degree.On March 2015,Draft Regulations on Deposit Insurance of china released by the State Council suggests that deposit insurance scheme is on track.According to plan,premium will gradually transit from flat-rate at initial stage to differential rate in future.Therefore,a research on deposit insurance premium system of Chinese financial institutions is extremely necessary.At present there are five major types of banks in China,5 big commercial banks,12 joint-stock commercial banks,hundreds of city commercial banks,thousands of rural financial institutions and 387 foreign banks.So China's deposit insurance pricing is due to be complex.First this article uses modified Black-Scholes Model,which is a prevailing method in international community to price deposit insurance premium,to conduct empirical analysis of 16 listed banks of china to calculate deposit insurance premium,in hope of finding out a deposit insurance premium pricing model suitable to listed banks in China and constructing a deposit insurance premium system which can reflect risk level.Then we do the factor analysis of estimated rate of banks,establish the regression model of facors.And we use the regression model to price the non listed banks.Altogether we have comprehensive measured deposit insurance premium rate of 140 banks.according to the ascending order,Then we conduct China deposit insurance rate system suggestion,we divide banks into five levels:Group 1:0.01%.There are 4 commercial banks in this level:Industrial and Commercial Bank of China,China Construction Bank,Bank of China,Agricultural Bank of China.They are the national nature of the large-scale banks.Group 2:0.03%There are 36 commercial banks in this level,including 3 listed banks(Bank of Communications,China CITIC Bank and China Minsheng Bank),3 non listed joint-stock banks(Bohai bank,Prudential Bank and Zheshang Bank),and 30 city commercial banks.Group 3:0.05%There are 41 commercial banks in this level,including 8 listed banks(Bank of China,Shanghai Pudong Development Bank,China Merchants Bank,IndustrialBank,Ping An Bank,Bank of Ningbo,Bank of Beijing,Bank of Nanjing),20 city commercial banks and 13 rural commercial banks.Group 4:0.07%There are 22 commercial banks in this level,including 1 listed banks(Ping An Bank),1 non listed joint-stock banks(Guangdong Development Bank),7 city commercial banks and 13 rural commercial banks.Group 5:0.10%There are 37 commercial banks in this level,including 11 city commercial banks and 26 rural commercial banks.