Deposit Insurance and Forbearance Under Moral Hazard

So, Jacky C.; Wei, Jason Zhanshun

doi:10.1111/j.0022-4367.2004.00109.x

Cited by 16 publications

(7 citation statements)

References 48 publications

(67 reference statements)

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“…18 Many previous studies posit that franchise (charter) values of insurers (banks) are closely related to their economic scales. For example, So and Wei (2004) derive the charter values of banks in terms of savings and monopoly rents. regulatory pressure (or cost), in addition to franchise value, can affect the expected equity value and thus influence the insurer's risk-taking behavior.…”

Section: Expected Equity Valuementioning

confidence: 99%

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The Relationship Between Regulatory Pressure and Insurer Risk Taking

Lin¹,

Lai²,

Powers³

2013

J of Risk & Insurance

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The article examines the risk-taking behavior of property-liability insurers in the presence of risk-based capital regulation. An option pricing model is developed to evaluate the expected regulatory cost and predict a nonlinear relationship between regulatory pressure and insurers' risk taking. We then conduct an empirical test using the simultaneous threshold regression. The result shows that there is a threshold effect of regulatory pressure on insurer risk taking. Poorly capitalized insurers seem to be aware of their proximity to regulatory interventions but do not fully respond to the impending regulatory pressure. This implies either regulatory interventions are not costly enough or they are too late, or both.

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Section: Expected Equity Valuementioning

confidence: 99%

“…Many previous studies posit that franchise (charter) values of insurers (banks) are closely related to their economic scales. For example, So and Wei () derive the charter values of banks in terms of savings and monopoly rents.…”

mentioning

confidence: 99%

The Relationship Between Regulatory Pressure and Insurer Risk Taking

Lin¹,

Lai²,

Powers³

2013

J of Risk & Insurance

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“…This is a key difference between our model and the constant charter value assumption in Craine's (1995) model. Also, see So and Wei (2000). explanation of (D F i À D i ) is charter value less deposit insurance plus a put option held by the deposit insurer.…”

Section: Deposit Insurance Schemes Designmentioning

confidence: 99%

“…Bernanke (1983),Grossman (1993),Jeon and Miller (2004), and Hyytinen(2002).8 So and Wei (2000).Designing deposit insurance scheme…”

mentioning

confidence: 99%

Designing deposit insurance scheme under asymmetric information with double liability option

Bhuyan

Yan

2007

Applied Financial Economics

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In this article, an option theoretic model is applied to develop a Deposit Insurance Scheme under asymmetric information environment. By introducing double liability as an option into the deposit insurance scheme, our model solves the Deposit Insurer's adverse selection problem. With appropriately designed deposit insurance premia and double liability obligations, we demonstrate that separating equilibria exist. The introduction of double liability into the current deposit insurance system adds additional cost to the system to make the insurance scheme more effective. Macey and Miller (1992) suggest that such double liability is a very useful tool for preventing the incentive problem typically created by current deposit insurance schemes. Based on Jackson (1993), Macey and Miller (1993) and Grossman (2002), no consensus exists to explain whether double liability can replace the current deposit insurance system. There are two companion issues that must be considered. The first is the preservation of the safety of the financial system. The second is the incentive created by current deposit insurance schemes for managers to take extra risk. This is an attempt to create a model in which both the deposit insurance premiums and double liability issues are integrated in a manner that preserves incentive compatibility, while embracing risk-sensitive deposit insurance policy.

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“…Chinese scholars have extended the original pricing model from the perspectives of debt settlement structure, commercial bank capital allocation, and income tax effect to obtain more realistic results [9][10][11][12]. e impact of credit risk, interest rate risk, and systemic risk on the pricing of deposit insurance has also been investigated [13][14][15][16]. Some scholars believe that the volatility of bank assets is time-varying, fully considering the impact of the heterogeneity of bank assets on deposit insurance prices [17][18][19][20].…”

Section: Introductionmentioning

confidence: 99%

Interval Pricing Study of Deposit Insurance in China

Yang

et al. 2020

Discrete Dynamics in Nature and Society

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This paper first proposes a European option pricing method for deposit insurance based on triangular intuitionistic fuzzy numbers. In the proposed method, we take into account the randomness and fuzziness of bank asset value simultaneously, and hence, the method can adequately reflect the high uncertainty of bank asset value. This method fuzzifies the value of bank asset, resubmits it into the original deposit insurance option pricing model as a fuzzy random variable, and then gives an analytic formula of deposit insurance rates using a risk-neutral method. After this, we have also conducted a numerical analysis. In specific, we have obtained the premium interval and presented the static analysis of key parameters. Finally, seven small- and middle-sized banks in Hunan Province in China are used as examples to validate the proposed interval pricing model. The Black-Scholes option pricing model and Yoshida’s triangular fuzzy model are also employed for comparison. The research results show that the interval rates obtained from the proposed European option pricing method for deposit insurance can better reflect the uncertainty of bank asset evaluation than the fixed rates obtained from the Black-Scholes option pricing model. Moreover, the model proposed in this paper is also superior to Yoshida’s model in practice.

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Deposit Insurance and Forbearance Under Moral Hazard

Cited by 16 publications

References 48 publications

The Relationship Between Regulatory Pressure and Insurer Risk Taking

The Relationship Between Regulatory Pressure and Insurer Risk Taking

Designing deposit insurance scheme under asymmetric information with double liability option

Interval Pricing Study of Deposit Insurance in China

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