TRANSFORMATION OF THE EU DEPOSIT INSURANCE SYSTEM: EVALUATION OF RISK-BASED INSURANCE PREMIUMS ON THE BASIS OF THE EXAMPLE OF LITHUANIAN BANKS

As financial and economic environment is changing around the world, it forces us to look at the functionality of the deposit insurance system. The research shows that during financial crisis systems are under-funded, and when the insured event happens it becomes costly to taxpayers due to non-cumulative amount in the deposit insurance fund. Therefore, this article provides an assessment model of the contributions of Lithuanian banks to the risk-based deposit insurance systems while using a multiple-indicator model, which is regarded as one of the priority models in order to modernise the deposit insurance system. The research of risk-based premiums is performed based on the example of Lithuanian banks with regard to the European Commission (2010) multiple-indicator model and a study carried out by Gomez Fernandez-Aguado et al. (2013), taking into account the guidelines of Draft European Parliament legislative resolution (2013) while modelling different risk coefficient range limits (Model 1 and Model 2). In order to base the risk of the banks that are paying contributions to the deposit insurance system in Lithuania, the total composite score of underwriting based on calculated and evaluated parameters highlighted the differences between the three major banks that share the market with smaller banks, depending on the economic situation. However, the study shows that contributions to the deposit insurance system by most major banks would increase while applying the model of the European Commission (2010) and Gomez Fernandez-Aguado et al. (2013) (Model 1). This is confirmed by the results of the study of Gomez Fernandez-Aguado et al. (2013) in Spain. The study showed that the volatility of bank contributions is high and the impact on the current contributions would significantly vary depending on the setting of the risk coefficient range limit (Model I and Model 2). It can be concluded that the setting of the risk coefficient range limit has not only a huge impact on estimating overall risk situation of an individual bank, but also on the contribution level from separate banks. Therefore, it is recommended that contributions to the deposit insurance system would be determined for each member in the proportion to the degree of the risk level incurred.