Risk-Based Assessment of Deposit Insurance Fund Adequacy

25 Pages Posted: 1 Jul 2012

See all articles by Sergey Smirnov

Sergey Smirnov

National Research University Higher School of Economics

Vladimir V. Zdorovenin

Aviva plc

Date Written: June 30, 2012

Abstract

We suggest a risk-based approach to deposit insurance fund adequacy assessment. The common practice for deposit insurers is set the target fund level based on the recent payouts history and most likely future losses. This approach underestimates the deposit insurer's risk, especially in the context of rapidly developing banking system fragility. In contrast, the proposed approach is consistent with capital adequacy regimes for banks and insurers and allows for a more prudent assessment of risk.

A deposit insurance fund should cover both expected and unexpected losses of the deposit insurance system at a sufficiently high confidence level. Based on a survey of theoretical literature and an extended dialog with deposit insurance practitioners, we give practical recommendations on designing and implementing risk-based deposit insurance fund adequacy assessment systems.

Keywords: deposit insurance, capital adequacy, economic capital, credit risk, Basel 2, Solvency 2

JEL Classification: G28, C19

Suggested Citation

Smirnov, Sergey and Zdorovenin, Vladimir V., Risk-Based Assessment of Deposit Insurance Fund Adequacy (June 30, 2012). Available at SSRN: https://ssrn.com/abstract=2097127 or http://dx.doi.org/10.2139/ssrn.2097127

Sergey Smirnov

National Research University Higher School of Economics ( email )

Myasnitskaya street, 20
Moscow, Moscow 119017
Russia

Vladimir V. Zdorovenin (Contact Author)

Aviva plc ( email )

St Helen's
1 Undershaft
London, EC3P 3DQ
United Kingdom
+442072832000 (Phone)

HOME PAGE: http://aviva.com

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