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Pricing the Cost of Deposit Insurance and Assessing Moral Hazard Effect: Evidence from Banking Sector in Sudan

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  • Onour, Ibrahim

Abstract

The primary aim of this paper to evaluate the cost of deposit insurance premium and assess moral hazard effect in the banking sector in Sudan. The analysis of moral hazard in this paper is based on two types of risks, credit default risk, measured as the ratio of non-performing loans to the total size of loans for each bank, and operational risk measured as technical inefficiency. The findings of the research indicate there is a positive association between insurance coverage premium and increase in each of these two risks, implying evidence of moral hazard effect. A policy implication of this result is that the moral hazard behavior in the banking sector can be mitigated by changing the current policy of flat rate deposit insurance premium to risk based insurance premium policy.

Suggested Citation

  • Onour, Ibrahim, 2013. "Pricing the Cost of Deposit Insurance and Assessing Moral Hazard Effect: Evidence from Banking Sector in Sudan," MPRA Paper 57082, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:57082
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    References listed on IDEAS

    as
    1. Kane, Edward J., 1995. "Three paradigms for the role of capitalization requirements in insured financial institutions," Journal of Banking & Finance, Elsevier, vol. 19(3-4), pages 431-459, June.
    2. Duan, Jin-Chuan & Yu, Min-Teh, 1995. "Assessing the cost of Taiwan's deposit insurance," Pacific-Basin Finance Journal, Elsevier, vol. 3(1), pages 139-139, May.
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    More about this item

    Keywords

    Deposit; Insurance; Moral hazard; Risk.;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G2 - Financial Economics - - Financial Institutions and Services

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