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

Topics:
Insurance
Tags:
Assumption,
Business Operations,
Corporate Insurance,
FDIC,
Finance,
Financial Planning,
Insurance
Source:
Federal Deposit Insurance Corp.

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Overview: 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. The article applies the credit-risk model to estimate the FDIC’s loss distribution; and performs 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. The article concludes 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.

(Is this item miscategorized? Does it need more tags? Let us know.)

Format: HTML | Date: Dec 2001 | Pages: 1

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