A Reexamination of the Over- (or Under-) Pricing of Deposit Insurance

Abstract

This study shows how fair deposit insurance premia can be calculated using data on bank stock prices, interest rate movements, and income and balance sheet accounts. Fair insurance premia are estimat ed under the alternative assumptions that the FDIC provides either a (variable rate) or insurance cont ract to banks. The paper's results suggest that for nearly all of the large commerical banks in the sample, the actual insurance premium c harged by the FDIC falls between the bounds of fair limited-term and unlimited-term insurance premia. Copyright 1987 by Ohio State University Press.