Research Of The Deposit Premium Rate Calculation Model To China Current Systems Applicability

The computation of deposit premium rate is the core problem to build completely explicit deposit insurance system. Around the world, the most commonly used deposit premium rate calculation models are the Merton option model and the expected pricing model. In May 2015, China Deposit Insurance Regulations put into effect, which marks the explicit deposit insurance system formally established. According to the Deposit Insurance Regulations the Ninth Item, China’s deposit premium rate is made up of baseline rates and risk based premium. However, the Deposit Insurance Regulations doesn’t clearly establish the deposit premium rate calculation model specifically.In consideration of the case, this paper firstly overviews the Merton option model and the calculation model, and makes a brief appraisal to the two models. Secondly, summarize current China’s deposit insurance system incorporating with items that are related with setting deposit premium rate of the Deposit Insurance Regulations. Then, introduce capital adequacy ratio to test the applicability of the Merton model and the expected pricing model to the current deposit insurance system of China.This paper, the first part from the angle of mathematical proof proves the cal-culated deposit premium rate of the Merton option model and the expected pricing model has negative correlation with capital adequacy ratio.The second part, from the angle of empirical analysis, discusses the applicability to China’s current deposit insurance system of the Merton option model and the ex-pected pricing model. In using of Matlab, analyze if China’s commercial banks’ deposit premium rate has negative correlation with capital adequacy ratio with the two deposit premium rate calculation. Then using the result to discuss the two deposit premium rate calculation model to the applicability of China’s current deposit insurance system.In the last part, this paper makes a proposal with the current system of China, the international experience and the analysis result of this paper to the deposit premium rate of China.