Estimating Dual Deposit Insurance Premium Rates and Forecasting Non-performing Loans: Two New Models
Risky banks that endanger the stability of the financial system should pay higher deposit insurance premiums than healthy banks and other financial institutions that have shown good financial performance. It is necessary, therefore, to have at least a dual fair premium rate system. In this paper, we develop a model for calculating dual fair premium rates. Our definition of a fair premium rate in this paper is a rate that could cover the operational expenditures of the deposit insuring organization, provides it with sufficient funds to enable it to pay a certain percentage share of deposit amounts to depositors in case of bank default, and provides it with sufficient funds as precautionary reserves. To identify and classify healthier and more stable banks, we use credit rating methods that employ two major dimensional reduction techniques. For forecasting non-performing loans (NPLs), we develop a model that can capture both macro shocks and idiosyncratic shocks to financial institutions in a vector error correction setting. The response of NPLs/loans to macro shocks and idiosyncratic innovations shows that using a model with macro variables only is insufficient, as it is possible that under favorable economic conditions some banks show negative performance or vice versa. Our final results show that stable banks should pay lower deposit insurance premium rates.
|Date of creation:||15 Jan 2015|
|Contact details of provider:|| Postal: Kasumigaseki Building 8F, 3-2-5, Kasumigaseki, Chiyoda-ku, Tokyo 100-6008, Japan|
Fax: (81-3) 3593-5571
Web page: http://www.adbi.org/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Naoyuki Yoshino & Farhad Taghizadeh-Hesary & Ali Hassanzadeh & Ahmad Danu Prasetyo, 2014.
"Response of Stock Markets to Monetary Policy : An Asian Stock Market Perspective,"
Finance Working Papers
24516, East Asian Bureau of Economic Research.
- Yoshino, Naoyuki & Taghizadeh-Hesary, Farhad & Hassanzadeh, Ali & Prasetyo, Ahmad Danu, 2014. "Response of Stock Markets to Monetary Policy: An Asian Stock Market Perspective," ADBI Working Papers 497, Asian Development Bank Institute.
- Naoyuki Yoshino & Farhad Taghizadeh-Hesary & Ali Hassanzadeh & Ahmad Danu Prasetyo, 2014. "Response of Stock Markets to Monetary Policy : An Asian Stock Market Perspective," Macroeconomics Working Papers 24516, East Asian Bureau of Economic Research.
- Poon, Winnie P. H. & Firth, Michael & Fung, Hung-Gay, 1999. "A multivariate analysis of the determinants of Moody's bank financial strength ratings," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 9(3), pages 267-283, August.
- Yoshino, Naoyuki & Taghizadeh-Hesary, Farhad, 2014. "Hometown Investment Trust Funds: An Analysis of Credit Risk," ADBI Working Papers 505, Asian Development Bank Institute.
- Bartholdy, Jan & Boyle, Glenn W. & Stover, Roger D., 2003. "Deposit insurance and the risk premium in bank deposit rates," Journal of Banking & Finance, Elsevier, vol. 27(4), pages 699-717, April.
- Bartholdy, Jan & Boyle, G. W. & Stover, R. D., 2003. "Deposit Insurance and the Risk Premium in Bank Deposit Rates," Finance Working Papers 02-10, University of Aarhus, Aarhus School of Business, Department of Business Studies.
- Acharya, Sankarshan & Dreyfus, Jean-Francois, 1989. " Optimal Bank Reorganization Policies and the Pricing of Federal Deposit Insurance," Journal of Finance, American Finance Association, vol. 44(5), pages 1313-1333, December.
- Hwang, Dar-Yeh & Lee, Cheng F. & Liaw, K. Thomas, 1997. "Forecasting bank failures and deposit insurance premium," International Review of Economics & Finance, Elsevier, vol. 6(3), pages 317-334.
- Noriko Inakura & Satoshi Shimizutani, 2010. "Deposit insurance and depositor discipline: direct evidence on bank switching behaviour in Japan," Applied Economics, Taylor & Francis Journals, vol. 42(26), pages 3401-3415.
- Noriko Inakura & Satoshi Shimizutani & Ralph Paprzycki, 2005. "Deposit Insurance and Depositor Discipline: Direct Evidence on Bank Switching Behavior in Japan," Hi-Stat Discussion Paper Series d05-125, Institute of Economic Research, Hitotsubashi University.
- Ravi Kumar, P. & Ravi, V., 2007. "Bankruptcy prediction in banks and firms via statistical and intelligent techniques - A review," European Journal of Operational Research, Elsevier, vol. 180(1), pages 1-28, July.
- Feger, Thuto & Asafu-Adjaye, John, 2014. "Tax effort performance in sub-Sahara Africa and the role of colonialism," Economic Modelling, Elsevier, vol. 38(C), pages 163-174.
- Naoyuki Yoshino & Tomohiro Hirano, 2011. "Pro-cyclicality of the Basel Capital Requirement Ratio and Its Impact on Banks-super-∗," Asian Economic Papers, MIT Press, vol. 10(2), pages 22-36, June.
- Buser, Stephen A & Chen, Andrew H & Kane, Edward J, 1981. "Federal Deposit Insurance, Regulatory Policy, and Optimal Bank Capital," Journal of Finance, American Finance Association, vol. 36(1), pages 51-60, March.
- Naoyuki Yoshino & Farhad Taghizadeh-Hesary, 2014. "Monetary policy and oil price fluctuations following the subprime mortgage crisis," International Journal of Monetary Economics and Finance, Inderscience Enterprises Ltd, vol. 7(3), pages 157-174.
- 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. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:ris:adbiwp:0510. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (ADB Institute)
If references are entirely missing, you can add them using this form.