Risk Adjusted Deposit Insurance for Japanese Banks / Ryuzo Sato, Rama V. Ramachandran, Bohyong Kang.

Format:

Book

Author/Creator:

Sato, Ryuzo.

Contributor:

National Bureau of Economic Research.

Ramachandran, Rama V.

Kang, Bohyong.

Series:

Working Paper Series (National Bureau of Economic Research) no. w3314.

NBER working paper series no. w3314

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1990.

Summary:

The purpose of this paper is to evaluate the Japanese deposit insurance scheme by contrasting the flat insurance rate with a market-determined risk-adjusted rate. The model used to calculate the risk-adjusted rate is that of Ronn and Verrna (1986) . It utilizes the notion of Merton(1977) that the deposit insurance can be based on a one-to-one relation between it and the put option; this permits the application of Black and Scholes(1973) model for the calculation of the insurance rate. The risk adjusted premiums are calculated for the thirteen city banks and twenty-two regional banks. The inter-bank spread in risk-adjusted rates in Japan is found to be as wide as in the United States. But the insurance system is only one component of the safety network for a county's banking system. The difference in the American and Japanese networks is described and its implications for the evaluation of the insurance system is discussed.

Notes:

Print version record

April 1990.