DefaultRisk.com the web's biggest credit risk modeling resource.

Credit Jobs

Home Glossary Links FAQ / About Site Guide Search
pa_other_67


Submit Your Paper

In Rememberance: World Trade Center (WTC)

Export citation to:
- HTML
- Text (plain)
- BibTeX
- RIS
- ReDIF

Dermine, Jean, Fatma Lajeri, "Credit Risk and the Deposit Insurance Premium: A note", Journal of Economics and Business, Vol. 53, No. 5, (September-October 2001), pp. 497-508.

Abstract: Previous research on market-based evaluation of deposit insurance premia has modeled the bank as a corporate firm with risky assets and insured liabilities. No attempt was made to analyze explicitly the risk characteristics of bank assets. The purpose of this note is to model bank lending explicitly and calculate loan-risk sensitive insurance premia. The lending function of banks creates the need to model equity as a 'capped' call option. A simulation exercise shows that market-based estimates of deposit insurance premium which ignore the cap lead to significant underestimation.

JEL Classification: G21, G28.

Keywords: Banking, Banking regulation, Deposit insurance.

Download paper (75K PDF) 12 pages

[