Determining the Target Deposit Insurance Fund: Practical Approaches for Data-Poor Deposit Insurers

39 Pages Posted: 6 Jul 2017

See all articles by John O'Keefe

John O'Keefe

Independent

Alex Ufier

FDIC Center for Financial Research

Date Written: May 1, 2017

Abstract

In order for deposit insurers to be able to maintain public confidence following a bank failure, they must be able to act quickly to repay depositors and adequately fund the resolution of failed institutions. According to the International Association of Deposit Insurers, the best measure of deposit insurer funding adequacy is the Target Fund Ratio, the deposit insurance fund divided by total insured deposits, and each countries fund target will vary based on institutional needs. This paper presents a framework to assist countries, especially data-poor ones, in developing such a funding target. The paper employs a simulation approach that combines probability of default, loss given default, default correlation, and exposure at default to yield Target Fund Ratios required for the deposit insurer to remain solvent across a variety of different economic environments. This paper then uses the U.S. as an example country and compares results of the method to U.S. experiences and policy decisions.

Keywords: Deposit Insurance, Bank Failure Prediction

JEL Classification: G21, G28

Suggested Citation

O'Keefe, John and Ufier, Alexander, Determining the Target Deposit Insurance Fund: Practical Approaches for Data-Poor Deposit Insurers (May 1, 2017). FDIC Center for Financial Research Paper No. 2017-04, Available at SSRN: https://ssrn.com/abstract=2997495 or http://dx.doi.org/10.2139/ssrn.2997495

Alexander Ufier

FDIC Center for Financial Research ( email )

550 Seventeenth Street, NW
Washington, DC 20057
United States
6104703539 (Phone)

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