Luc Laeven
- Published in print:
- 2008
- Published Online:
- August 2013
- ISBN:
- 9780262042543
- eISBN:
- 9780262271462
- Item type:
- chapter
- Publisher:
- The MIT Press
- DOI:
- 10.7551/mitpress/9780262042543.003.0003
- Subject:
- Economics and Finance, Econometrics
This chapter performs an investigation on how the price of deposit insurance is affected by design features of deposit insurance schemes. It answers certain questions as to the definition of a fair ...
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This chapter performs an investigation on how the price of deposit insurance is affected by design features of deposit insurance schemes. It answers certain questions as to the definition of a fair price, the cost of deposit insurance, payment for bank losses and bank systemic risk, and how deposit insurance is affected by financial regulation. The chapter considers that the actual contributions by banks to cover deposits as well as their pricing as fair is what is referred to by the funding of deposit insurance. Alternative methods of pricing value of deposit insurance are explored in the chapter, namely Merton’s option pricing model and the expected loss pricing approach. Using market-based models is therefore seen as vital due to their ability to create estimates of actuarially fair deposit insurance premiums for banks.Less
This chapter performs an investigation on how the price of deposit insurance is affected by design features of deposit insurance schemes. It answers certain questions as to the definition of a fair price, the cost of deposit insurance, payment for bank losses and bank systemic risk, and how deposit insurance is affected by financial regulation. The chapter considers that the actual contributions by banks to cover deposits as well as their pricing as fair is what is referred to by the funding of deposit insurance. Alternative methods of pricing value of deposit insurance are explored in the chapter, namely Merton’s option pricing model and the expected loss pricing approach. Using market-based models is therefore seen as vital due to their ability to create estimates of actuarially fair deposit insurance premiums for banks.
