Calculation of Insurance Premium Rates for Deposits for Payment and Settlement Purposes and for General Deposits, etc.

(Reference)

(1) Calculation Method of Insurance Premium Rates for Deposits for Payment and Settlement Purposes and for General Deposits, etc.

  • Deposit insurance premiums are calculated by multiplying the balance of eligible deposits (average daily balance for business days) under the deposit insurance system in the previous fiscal year by the insurance premium rate (Articles 51 and 51-2 of the Deposit Insurance Act). When determining the insurance premium rates for a specific year, it is required that the effective rate (expressed as a percentage to three decimal places) be set first and then the rate for deposits for payment and settlement purposes (eligible for full protection) and the rate for deposits for general deposits, etc. (eligible for limited protection), which are the insurance premium rates based on the Deposit Insurance Act, be arrived at through calculation.
  • Specifically, the Financial System Council recommended (see below) that it is appropriate to set different rates for deposits for payment and settlement purposes and general deposits, etc. (appropriate that the rate for deposits for payment and settlement purposes be set at a higher level than the rate for general deposits, etc.) because they are different in the scope of protection. In light of this recommendation, it has been decided to arrive at the rates as described in (2) on the premise that “the deposit insurance premium per ¥1 of insured deposit regarding deposits for payment and settlement purposes and the one regarding general deposits, etc. be equal.

▽Recommendation by the Financial System Council (September 2002)

Although the full protection of deposits for payment and settlement purposes is a measure of a highly public nature in that it provides a safe means of payment and settlement, it is depositors who directly enjoy the benefits of safe payment and settlement services. In light of this, it is appropriate to use deposit insurance premiums as a funding source of the full protection of deposits for payment and settlement purposes. Given the full protection, it is appropriate that the deposit insurance premium rate for payment and settlement purposes be set at a different level from the rate for other deposits.

(An omission) Moreover, setting the deposit insurance premium rate for deposits for payment and settlement purposes at a higher level than the rate for other deposits may deter financial institutions from trying to collect cost-free funds. At the same time, if the burden is appropriately passed on to depositors (through the collection of fees, for example) based on an appropriate cost calculation by financial institutions, it will presumably prevent moral hazard among depositors.

(2) Specific Calculation Method

  • In light of the above, (A) the rate for deposits for payment and settlement purposes and (B) the rate for general deposits, etc. should be set so as to ensure that the following two equations stand, with (C) representing the pre-determined effective rate.

Balance of deposits for payment and settlement purposes ×(A)+ Balance of general deposits,etc.×(B) 
= total balance of eligible deposits× (C)

Balance of deposits for payment and settlement purposes×(A)/Balance of deposits for payment and settlement purposes  = Balance of general deposits,etc.×(B)/Protected portion of general deposits,etc.(estimate)

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