Evaluating the Adequacy of the Deposit Insurance Fund: A Credit-Risk Modeling Approach

Federal Deposit Insurance Corp. Working Paper 2001-02

74 Pages Posted: 25 Apr 2002

See all articles by Rosalind L. Bennett

Rosalind L. Bennett

FDIC, Division of Insurance and Research

Date Written: December 2001

Abstract

As part of an effort to measure risk effectively, the FDIC hired Oliver, Wyman & Company to develop a credit-risk model for the deposit insurance funds. I apply their credit-risk model to estimate the FDIC's loss distribution; and I perform sensitivity analysis using different assumptions about the parameters of the model. The sensitivity analysis results in a wide range of possible credit ratings associated with the deposit insurance funds. Under one set of assumptions, the deposit insurance funds would not warrant a BBB rating, whereas under another set of assumptions the funds would warrant an A rating. I conclude that the measures of risk derived from the credit-risk model are sensitive to the parameter assumptions, and it is not clear which parameter assumptions are most relevant.

Keywords: Deposit insurance, Credit risk, Default risk

JEL Classification: G21, G28, G11, G33

Suggested Citation

Bennett, Rosalind L., Evaluating the Adequacy of the Deposit Insurance Fund: A Credit-Risk Modeling Approach (December 2001). Federal Deposit Insurance Corp. Working Paper 2001-02, Available at SSRN: https://ssrn.com/abstract=308585 or http://dx.doi.org/10.2139/ssrn.308585

Rosalind L. Bennett (Contact Author)

FDIC, Division of Insurance and Research ( email )

550 Seventeenth Street, NW
Washington, DC 20057
United States
202-898-7160 (Phone)

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