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Alternative Pricing Models of Deposit Insurance under Capital Forbearance

Author

Listed:
  • Mao Hong

    (Shanghai Second Polytechnic University, China)

  • Ostaszewski Krzysztof M.

    (Illinois State University)

Abstract

In this paper, we present alternative pricing models of deposit insurance under capital forbearance. The investment behavior of deposit insurance companies and moral hazard of banks are considered and numerical analysis is carried out. We find that If the premium rate reflects forecasting instead of merely assessing the liability in determining premium rate, and considering the effect of the relationship between deposits interest rate and insolvency risk of banks, this can help decrease this moral hazard created after the issuance of the insurance contract.

Suggested Citation

  • Mao Hong & Ostaszewski Krzysztof M., 2009. "Alternative Pricing Models of Deposit Insurance under Capital Forbearance," Asia-Pacific Journal of Risk and Insurance, De Gruyter, vol. 3(2), pages 1-10, April.
  • Handle: RePEc:bpj:apjrin:v:3:y:2009:i:2:n:6
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    References listed on IDEAS

    as
    1. Kane, Edward J. & Hendershott, Robert, 1996. "The federal deposit insurance fund that didn't put a bite on U.S. taxpayers," Journal of Banking & Finance, Elsevier, vol. 20(8), pages 1305-1327, September.
    2. Kane, Edward J., 1986. "Appearance and reality in deposit insurance: The case for reform," Journal of Banking & Finance, Elsevier, vol. 10(2), pages 175-188, June.
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