The Research On Pricing Of Non-listed Bank Deposit Insurance In China

Finance is the core of modern economy. The development of finance determinesthe level of economic progress in a country. In recent decades, financial crises brokeout frequently, and no country escaped from the crises because of the financialglobalization. Therefore, financial security reaches to the top priority. Depositinsurance system, as an important security pillar of the financial industry, can protectthe benefits of small depositors effectively, and guarantee the operation of the financesafely. Now it has been adopted by many countries. In China, we have taken theimplicit government guarantee system over the year, which is not only ineffective andunfair, but also brings heavy financial burden to our government. At present, Chinahas been making preparations for the explicit deposit insurance system, the core ofwhich is the deposit insurance pricing. According to Merton option pricing model,only the listed banks can be calculated out a reasonable premium rate based on theasset volatility. Thus, this paper attempts to explore a way of deposit insurance pricingfor non-listed banks by “market comparable valuation”.Firstly, this paper introduces the development and tendency of the depositinsurance system, especially the pricing of deposit insurance. Then I summarize themain research results of deposit insurance pricing at home and abroad, which lead outthe subject of this paper--non-listed bank deposit insurance pricing in China. Next,the paper analyzes the relationship between the pricing of deposit insurance anddeposit insurance, which is that a reasonable deposit insurance pricing is able toweaken the pro-cyclicality of banks and prevent the moral hazard and adverseselection. Then the article focuses on the deposit insurance pricing of severalrepresentative countries, and points out some aspects that are worth praising.Merton option pricing model is only suitable for the listed banks that we can gettheir market value of assets. In order to improve the practicability of the model, thispaper searches on how to get the non-listed banks market value of assets and thevolatility in the third and fourth parts. First, according to Merton option pricing model,I calculate the suitable premium rates of listed banks over the years in China, and wemay obtain78valid data. The next is to estimate the market value of bank assets andasset value volatility, and get the relationship between these and the banks’ financialdata. Financial data include the banks’ capital adequacy ratio, profitability, incomesstructure and so on. Finally, based on the financial data of non-listed banks, binding with the estimated results of the market value of bank assets and asset value volatilityfrom the former step, we can obtain the premium rates by putting the data into Mertonoption pricing model.As a practical system, we should put more attention on the application. So bymeans of analyzing the relationship between the premium rates and financial data, thepaper also makes a few suggestions on the “index scoring model”. The suggestionsinclude that the premium rate may improve faster along with the depression of bank’scapital adequacy ratio, and there are two sides between the premium rate and thebank’s profitability. Besides, higher non-interest income may decrease the premiumrate significantly, and the premium rate should also take the macro-environment andthe reasonable parameter of regulatory forbearance into consideration.