The Research Into Reasonable Pricing Of Deposit Insurance

In recent years, China’s financial market through continuous development, has made great strides. The pace of market-oriented interest rate is becoming faster and faster, which will affect the bank’s current spreads and make it possible for commercial banks to close down, bringing loss of deposits and a wave of bank runs.In order to deal with this risk, the deposit insurance system for deposits is badly needed. China’s current system is implicit deposits insurance system, behind which is state credit. Implicit deposit insurance protects the interests of depositors, and bring the stability of the financial system, but it will give rise to moral hazard, increase the government’s financial burden, and make the taxpayers pay for the mismanagement of the bank. So our urgent need is to establish a dominant deposit insurance system in line with market conditions. The core of the deposit insurance system is the reasonable pricing of deposit insurance, which includes the choice of the choice of form and deposit insurance premium rate method. The course also includes some of the legislation, the deposit insurance agency responsibilities. Reasonable pricing of deposit insurance is directly related to the success of deposit insurance system implemented; at the same time, you can also select the method of determining the form of deposit insurance premium rate, incentivize China’s commercial banks to strengthen risk management efforts, increase profitability and improve operational soundness. So, the reasonable pricing of deposit insurance has a double meaning the stability of China’s financial markets.The financial markets continuous development in the direction of liberalization and internationalization makes the contagion speed of financial risks faster, the event of a run on individual banks due to poor management are likely to quickly evolve into a financial crisis. So it is urgent to strengthen the regulation of the banking market, and establish a relevant deposit insurance system to maintain the stability of China’s financial markets. Although implicit deposit insurance system has made a great contribution to stability and development of China’s financial market, it has become increasingly outdated. And many of our scholars recommend to speed up the implementation of the interest rate market in China and building explicit deposit insurance system as a guarantee of the interest rate market and supporting measures. The core of the deposit insurance system is the reasonable pricing of deposit insurance. Reasonable pricing of deposit insurance includes rate selection, the comparison of the pricing methodology, as well as other factors. In those countries where the current deposit insurance system has been implemented, deposit insurance rate mainly has two forms--a single fixed rate and risk-differentiated rate. Pricing methods have two kinds---a series of options deposit insurance pricing model developed from option pricing model and the expected loss pricing model. In addition to the form of deposit insurance premium rate and pricing methods, there are some other factors that will affect the reasonable pricing of deposit insurance, such as the construction of its complete legal protection, the credit rating system, precaution and forecasting of financial risks, the introduction of regulatory tolerance and so on. The introduction of the deposit insurance system is just around the corner, the People’s Bank of China strive to establish a deposit insurance system in2013and reasonable pricing of deposit insurance is a prerequisite for the smooth implementation of the deposit insurance system. Therefore it is necessary for rational pricing of our deposits. After referring to the practice and experience of other countries as for insurance pricing rates in the form of the selection, pricing methods to determine, as well as other relevant factors, given the situation that China’s financial market is not perfect yet and the deposit insurance system is still in the initial stage, the paper is aimed at making some research and analysis of the reasonable pricing of deposit insurance, and hopefully it can be helpful for the reasonable pricing of deposit insurance.This article consists of six parts:The first part is an introduction, a combing and summary to research on the pr icing of deposit insurance at home and abroad Includes three aspects:the significa nee and relevant the research literature reviews; purpose of the study,the methods used, and the difficulty encountered in the study as well as innovation and research. The second part begins with the introduction of deposit insurance system which co nsists of the emergence and development, the importance, as well as the details of t he deposit insurance system factors. it also describes the importance of the reasona ble pricing of deposit insurance.The third part is about pricing of deposit insurance of other countries in the w orld, such as forms of rates, pricing methods, and relative legal documents and reg ulatory bodies, etc.The option pricing models are not very practical, due partly to the strict hypothesis of pricing models, partly to the lack of relevant information and imperfection of China’s capital market. But we can use this model to point out that the deposit insurance rates are influenced by core capital ratio. The data of expected loss pricing model is available and can be used to price both the listed and unlisted banks, so it is practical. At last some suggestions about other factors that influence the pricing of deposit insurance are made.