Deposit Insurance Pricing Comparison Research

In recent years, our country deepens exploration and practice on financial reform field. On July 20,2013, the People’s Bank of China propelled the process of market-oriented interest rate reform; on January 6,2014, the China Banking Regulatory Commission put forward private banks pilot in its annual supervision conference call. On the one hand, the layout and the composition of the financial market will be changed and the market will become more dynamic; on the other hand, the problems of security of the deposits in monetary savings institutions are worthy of attention again. The truth of the People’s Bank of China releasing Deposit Insurance Regulations (Draft) on November 30,2014 means that the deposit insurance system in China will transfer from pure academic stage to practice exploration stage. Therefore, renewing the deposit insurance pricing theory, applying of simulated calculation and comparing pricing theory have considerable practical significance.This article first introduces the principle theories supporting deposit insurance, and analyses two major schools of deposit insurance pricing theory, at the same time compares the principle, the hypothesis and the applicable scope of the two pricing theory.After that, this article uses the Ronn-Verma model to calculate rates of China’s 16 listed banks, and analyses sensitivity of rate to regulatory tolerance, dividend rate and asset liability ratio of the banks. Then, this article uses expected loss pricing model to calculate the rate of deposit insurance of 12 listed banks which has credit rating of the Standard & Poor or the Moody, comparing the pricing results of the two pricing models. For the masses of small or medium size commercial banks which has no credit rating or not listed, this article assumes these banks face the same market status of listed banks, and establishes a MLS model of financial data and parameters of the option model, then uses this MLS model to estimate deposit insurance rate of non-listed banks.Due to the short history of domestic capital market, the rate coming from Ronn-Verma model is higher than which from expected loss model. So it is necessary to construct default database and credit rating system in order to implement expected loss model in pricing. The option pricing models will become more accurate as the capital market more mature. Because the dividend rate and the asset liability ratio will affect the rate of deposit insurance significantly, banks should re-examine their management mode if the option pricing models are put into practice. From regulation perspective, different regulatory tolerance should be put into practice in order to achieve the purpose of maintaining bank security and other purposes of regulation. For unlisted small or medium banks, the rate which is priced by the market compare models can be an important reference, yet it is more important to accelerate establishing Chinese bank default database and credit rating system to cover these banks.