"APPLYING A TWO-STEP MAXIMUM LIKELIHOOD METHOD TO EXAMINE THE DEPOSIT I" by David K. Wang, Chun-Chou Wu et al.
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Abstract

This paper examines the deposit insurance program of Taiwan. We adopt Duan et al. [4]’s deposit insurance pricing model, and estimate the deposit insurance premium by the Duan and Simonato two-step maximum likelihood method [5]. Our results show that the maximum likelihood estimates for the deposit insurance premium are considerably higher than the official rates currently charged by the Central Deposit Insurance Corporation (CDIC), the deposit insuring agency of Taiwan, indicating that the CDIC deposit insurance program appears to hand out a substantial subsidy to the banks in Taiwan. Our results also show that the CDIC in fact grants too much capital forbearance to the banks, and that the semiannual bank audits currently mandated by the CDIC are in fact much less frequent than our estimated values. These findings may also explain why the estimated rates for the deposit insurance premium are much higher than the current CDIC rates.

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