A Study On Deposit Insurance Ratemaking

By the end of May,2014, the total assets of the banking institutions up to159.62trillion yuan, such a huge total assets in the absence of deposit insurance case, it will cause a huge potential risk.Faced with the fact that our country needs to shift from stealth deposit insurance system to the explicit deposit insurance system.In March of this year, Prime Minister Li firstly give the government work report at the NPC session, and the report pointed out:we are to establish a deposit insurance system and improve risk management mechanisms of financial institutions in2014.Obviously, establishing work of the deposit insurance system which bred20-year-old in our country has been gradually expanded,and deposit insurance has been pretty clear.The core to establish deposit insurance system is to determine the rate.In this paper, I primary study the selection of the rate system and ratemaking method.Firstly I introduce the advantages and disadvantages of two rate systems, and combined with China’s actual situation choose suitable for China’s rate system.Then I introduce two internationally ratemaking models:the stock option pricing model and the expected loss pricing model.The paper introduce basic ideas and specific formula and their development of two models and to explore ratemaking which is suitble for our country.And it expounds the deposit insurance system in our country’s development process, and learn from three areas outside which are experienced in selecting of the rate system and ratemaking models.After considering the advantages and disadvantages and applicability of the different rates system and the ratemaking model, drawing on overseas experience, this paper proposes an innovative ratemaking method of deposit insurance, called "Tiered Performance Pricing Method".The basic idea of this method is to run measurable and quantifiable indicators which reflect the risks faced by banks and business conditions into data envelopment model,and calculate the value of each bank’s annual performance of the last five years,and determine the bank whose average annual performance value is the largest into the benchmark bank.And banks are divided into10grades in accordance with the performance values for each0.1rating,and banks whose annual performance value at a uniform level have the same deposit insurance rates, and banks in different levels have different deposit insurance rates. With stock option pricing model to obtain the benchmark rate,and then average the annual performance value of the banks in each class.I determin the reciprocal of the mean of the average annual performance value into rates multiple,and then compute the deposit insurance rates of various levels with benchmark rate multiplied by rates multiples.The approach taken in the last five years of data on index data selection, because our country taking into account national development plan for the period is usually five years, while the operating conditions of banks are closely related to national planning policies, and therefore, the bank index data in last five years to reflect the operating status of most banks in the current environment has a certain stability.Based on the performance of the Tiered Performance Pricing Method theoretical,this paper selects100commercial banks and select dates in last five years of operating income, the capital adequacy ratio, total loans, total deposits, deposit and loan ratios, net profit, total assets, return on assets and non-performing loan ratio and run nine indicators data into discretionary variables model.After running the model,I get the annual performance value in five years of the banks,and then average annual performance value.While the performance value of ICBC is maximum, so determin ICBC as the benchmark, and its rate as the benchmark rate.And devide the100banks into six grades in accordance with the value of each bank’s performance.Analysis of the data and the results of each instance,there is a big gap between China’s banking risks and operating conditions,so differential premium rate system is more suitable to China.By analyzing the results in terms of Tiered Performance Pricing Method based on the theory or in the actual operation has its rationality. We can also conclude that banks operating scale and operating conditions together determine the size of the bank rates and deposit insurance system in China can be further developed.The rates at two levels of the bank is too large multiples.so for the banks at latter two grades whether should be involved in the deposit insurance needs further discussion.