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

37 Pages Posted: 3 Jun 2020 Last revised: 5 Aug 2021

See all articles by Charles Kusaya

Charles Kusaya

Deposit Protection Corporation Zimbabwe

John O'Keefe

Independent Consultant

Alex Ufier

FDIC Center for Financial Research

Date Written: August 4, 2021

Abstract

We develop a model of deposit insurer choices for pricing deposit insurance, determining the target insurance fund, resolving bank failures and managing insurer investments. The academic literature and law treat these four areas as separate processes. Deposit insurers’ experience, however, shows there are trade-offs between these operations. We use a risk aggregation model (copula) to combine multiple insurer revenue and expense streams. We apply ruin theory, common to insurance literature but not previously used for deposit insurers, to these streams to study target fund estimates and insurer insolvency risk. Our results suggest a target fund for the FDIC (as an example) of $98 billion as of year-end 2019 based on a 99.97 percent confidence level for fund solvency; the official FDIC target fund is $150 billion as of year-end 2019. Next, we test alternative scenarios for achieving a target fund and show changes in probability of ruin and fund capital under various funding strategies a deposit insurer could employ.

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 4, 2021). 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)

John O'Keefe (Contact Author)

Independent Consultant ( email )

Alexander Ufier

FDIC Center for Financial Research ( email )

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

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
41
Abstract Views
289
PlumX Metrics