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
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: Suggested Citation
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