Bridging the Gap between the Deposit Insurance Fund Target Level and the Current Fund Level

49 Pages Posted: 3 Jun 2020 Last revised: 17 Aug 2020

See all articles by Charles Kusaya

Charles Kusaya

Deposit Protection Corporation Zimbabwe

John O'Keefe

Independent

Alex Ufier

FDIC Center for Financial Research

Date Written: August 15, 2020

Abstract

We develop a model of the deposit insurer’s choices for pricing deposit insurance, determining the target insurance fund, resolving bank failures and managing the investment portfolio (hereafter, key insurance operations). The academic literature treats these four areas as separate processes and deposit insurance laws address these processes separately. Deposit insurers’ experience, however, shows that there are interactions and trade-offs between key insurance operations. We address the gap between deposit insurance laws and insurers’ practices by developing a model that allows for the interactions of key insurance operations. Specifically, we use a risk aggregation model (copula) that includes income and expenses for key insurance operations in order to estimate the target insurance fund. Next we apply ruin theory to these same income and expense streams and target fund estimates to study their effect on insurer insolvency risk in a case study of the U.S. FDIC.

Keywords: Copula, Deposit Insurance, Ruin Theory, Target Fund

JEL Classification: G21, G28

Suggested Citation

Kusaya, Charles and O'Keefe, John and Ufier, Alexander, Bridging the Gap between the Deposit Insurance Fund Target Level and the Current Fund Level (August 15, 2020). Available at SSRN: https://ssrn.com/abstract=3605487 or http://dx.doi.org/10.2139/ssrn.3605487

Charles Kusaya

Deposit Protection Corporation Zimbabwe ( email )

Harare, Manicaland
Zimbabwe
00263718408487 (Phone)

Alexander Ufier

FDIC Center for Financial Research ( email )

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

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
18
Abstract Views
138
PlumX Metrics