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Study on the deposit insurance system

Author: LiSaiHui
Tutor: YueYiDing
School: Central South University
Course: Finance
Keywords: Deposit Insurance System Functional Analysis Insurance Pricing DIS Design
CLC: F822
Type: Master's thesis
Year: 2009
Downloads: 101
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Abstract

Faced with the global financial crisis caused by the sub-prime crisis in the United States, many countries are engaged in establishing the effective and efficient risk supervision system to guard against and reduce systemic financial risk. The Deposit Insurance System (DIS), introduced for handling the financial crises between 1929 and 1933, has provided an effective impetus in preventing financial risk, protecting the benefit of depositors, maintaining financial security, enhancing the public confidence about financial institutions and controlling the"Domino Effect" brought about by the bankrupcy of some financial institutions. As a result, the DIS system is adopted by more and more countries in the globe. With the deepening of China’s reform in economy and financial systems and the expansion of international economic and financial integration,our financial stability will face more complex challenges. It is an important issue to establish the DIS to improve the financial security system in both theory and practice. This paper starts from this point and is divided into five chapters.ChapterⅠ, Introduction presents the background of the reaearch, the literature review, and the reseaech methods. DIS is one of the three pillars of the financial safety net. We proposed the goal to establish "functional, powers and responsibilities of a unified, operational effective" DIS in the 2007 national financial work conference. The paper introduced the theoretical and empirical research results about the DIS at home and abroad. We will use theoretical research and mathematical analysis methods and combine the empirical international experience when designing the China’s deposit insurance system.ChapterⅡ, functional analysis of the deposit insurance system.The paper revealed the three main functions of the DIS through theoretical analysis: systematic protection of the banking system, bank failures market exit mechanism, and fostering a multi-level functions of the banking system. The paper refers that DIS can prevent the banking system "Resonance "and the" Domino effect" effectively through protecting the interests of depositors, isolation of individual bank failure risk, stability and public confidence by building a game model. Paper reveales that the costs of disposal of a bank failure mechanism are different between the explicit and implicit DIS by A comparing and analysising the cost-sharing rules of bank failures in the implicit deposit insurance, explicit deposit insurance. The different roles of the deposit insurance system will help enhance the competitiveness of small and medium banks which are conducted to foster multi-level banking system and enhance social welfare by game model analysis.For the criticism of the deposit insurance system, the papaer points out that information asymmetry, limited liability, high leverage, performance characteristics inherent in the pursuit of other banks which are major incentives of the banking moral hazard and adverse selection.DIS would not be significantly Zoom in moral hazard. We can give an effective system design to prevent and mitigate the impact of moral hazard.ChapterⅢ, inspection of the international deposit insurance system。We studied the historical development of the world’s DIS, process, the operation mode, development trends and good practices. The international DIS is divided into early stages of the development process, resulting in phase, proliferation phase and accelerating development phase. We inspected three typical deposit insurance system in the United States, Germany, and the United Kingdom.The fact that DIS varies around the world yet shows the common features and development trends.ChapterⅣ, deposit insurance pricing research.We analysis the Merton option pricing model, GARCH option pricing model, and thepricing model based on the expected loss. The Paper gives some banks priced premium rate through the Merton option pricing model, pricing model based on the expected loss.The paper gives an useful exploration for insurance pricing which proposes a theory based on the insurance pricing model.ChapterⅤ, we summed up the practice of personal financial claims protection since the China’s reform and opening up, analysis of rudimentary deposit insurance in China;Considering the international experience and China’s reality, this paper presents some reasonable suggestions for the strategic objectives, responsibilities, organizational form, coverage, rate structure, timing and transitional arrangements and other major aspects of the deposit insurance system. The paper Points out that China should establish a narrow model covering all deposits from the public banking financial institutions, double different rates of the DIS.ChapterⅥ, summary and outlook. Paper summarized the relevant conclusions and noted the shortcomings of the paper.

Study on the deposit insurance system

Abstract

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