(Consideration of Capital Forbearance and Moral Hazard in the Determination of Deposit Insurance Premium)

2008 ◽  
Author(s):  
Sang-Youp Lim
Keyword(s):  
Moral Hazard ◽  
Deposit Insurance ◽  
Insurance Premium

scholarly journals Determination of Deposit Insurance Premium (LPS): Merton’s Option Theory with Co-Insurance Consideration

2021 ◽  
Vol 1 (2) ◽  
pp. 44-49
Author(s):  
Naomi Pandiangan
Keyword(s):  
Moral Hazard ◽  
Deposit Insurance ◽  
Insurance Premium ◽  
Deposit Insurance System ◽  
Black Scholes ◽  
Option Theory ◽  
Almost All ◽  
Excessive Risk Taking ◽  
Excessive Risk

Indonesia is a developing country that implements a deposit insurance system. Deposit Insurance Agency or LPS is an Indonesian deposit insurance established in 2004, which is Indonesian still unfamiliar with LPS, both among researchers, and the general public. Almost all deposit insurance in every country including Indonesia has the same problem, the problem is how to calculate premiums and how to avoid moral hazard by banks, therefore in this study will discuss how to determine premiums from the development of Black-Scholes option theory (1973) conducted by Merton (1977). To prevent banks from engaging in moral hazard, co-insurance is considered in this study, which is banks take the risk to anticipate 'excessive risk-taking' behavior. that occurs if the value of the asset is smaller than value of the deposit after joining the insurance program. So it is expected to encourage banks to beware.

Effect of explicit deposit insurance premium on the moral hazard of banks’ risk-taking: Around the globe

2018 ◽  
Vol 05 (02) ◽  
pp. 1850012
Author(s):  
Raheel Mumtaz ◽  
Imran Abbas Jadoon
Keyword(s):  
Moral Hazard ◽  
Risk Taking ◽  
Deposit Insurance ◽  
Linear Models ◽  
Banking System ◽  
Insurance Premium ◽  
Empirical Estimation ◽  
Negative Effect ◽  
Small Banks ◽  
Selection Of

The adoption of explicit deposit insurance increases the moral hazard of banks’ risk-taking, caused by the decrease in depositors’ discipline. Based on the contract theory, this study probes whether the inception of risk-based deposit insurance premium may limit the moral hazard of banks’ risk-taking triggered by the deposit insurance. This study conducted the analysis on 2,196 banks of 125 countries, covered by the Bankscope database from 2002 to 2014 period. The hierarchical linear models (HLM) were used for empirical estimation of research models. The findings revealed that risk-based deposit insurance premium deteriorated the moral hazard of banks’ risk-taking, incited by the enactment of explicit deposit insurance, while this effect was high for the small banks. Therefore, the small banks were more stable and positively affected by the selection of risk-based deposit insurance premium as compared to the larger counterparts. However, it cannot eliminate this negative effect completely. Hence, the implementation of the premium structure by policymakers on the finding of this study encouraged the depositors and investors’ confidence in the banking system around the globe.

scholarly journals Sound Deposit Insurance Pricing Using a Machine Learning Approach

Risks ◽  
2019 ◽  
Vol 7 (2) ◽  
pp. 45 ◽  
Author(s):  
Hirbod Assa ◽  
Mostafa Pouralizadeh ◽  
Abdolrahim Badamchizadeh
Keyword(s):  
Machine Learning ◽  
Moral Hazard ◽  
Deposit Insurance ◽  
Implied Volatility ◽  
Calibration Method ◽  
Quadratic Model ◽  
Learning Approach ◽  
Conceptual Issue ◽  
Hazard Risk ◽  
Machine Learning Approach

While the main conceptual issue related to deposit insurances is the moral hazard risk, the main technical issue is inaccurate calibration of the implied volatility. This issue can raise the risk of generating an arbitrage. In this paper, first, we discuss that by imposing the no-moral-hazard risk, the removal of arbitrage is equivalent to removing the static arbitrage. Then, we propose a simple quadratic model to parameterize implied volatility and remove the static arbitrage. The process of removing the static risk is as follows: Using a machine learning approach with a regularized cost function, we update the parameters in such a way that butterfly arbitrage is ruled out and also implementing a calibration method, we make some conditions on the parameters of each time slice to rule out calendar spread arbitrage. Therefore, eliminating the effects of both butterfly and calendar spread arbitrage make the implied volatility surface free of static arbitrage.

Credit risk and the deposit insurance premium: a note

2001 ◽  
Vol 53 (5) ◽  
pp. 497-508 ◽  
Author(s):  
Jean Dermine ◽  
Fatma Lajeri
Keyword(s):  
Credit Risk ◽  
Deposit Insurance ◽  
Insurance Premium
Sign in / Sign up

Export Citation Format

Share Document