General Guidance for Developing Differential Premium Systems

October 31, 2011
rating publicly can enhance discipline and provide additional incentives for
banks to improve their future results.
On the opposite end of the spectrum, highly rated banks may use the
disclosure of their ratings to attract more deposits and other business to
themselves. And, faced with the prospect that their rating (and individual
components) may be disclosed, they may be reticent to support the
introduction of such a premium scheme. 16
In addition, many deposit insurance entities do not collect directly the
information that is needed for the differential premium system and must rely
on supervisors or regulators to provide them with this information. In these
cases, decisions on disclosure will have to take into account the policies of
the authorities and any confidentiality provisions related to the disclosure of
information which has been received from banks. 17
For these types of reasons, designers of differential premium systems need
to determine the appropriate balance between the desire to promote
accountability, discipline and sound management through disclosure and the
need to ensure confidentiality. Some systems have sought a balance with a
policy of partial transparency (e.g. Taiwan, the United States and Canada).
That is, at a minimum the basic framework of the system and the factor
criteria used are disclosed to the public but the actual ratings or premium
categories are only disclosed to the board of directors and management of
the bank. In such cases, banks are prohibited from disclosing their premium
category and any rating (or rating component) on which that classification is
based. At present, no deposit insurance system publishes these ratings.
IX. Review, updating and fine-tuning of a differential
premium system
Given the potential financial impact of differential premium rates for banks, it
would be expected that some banks may wish to provide amended
16 The use of coinsurance by a deposit insurance system has implications for disclosure and
confidentiality. It can be argued that in situations where only a pre-specified proportion of deposits are
insured, extensive information needs to be provided to the public regarding the financial condition of
banks.
17 It should be noted that in some countries securities regulators may require the disclosure of deposit
insurance premium payments and any material increases in such payments. Thus, sophisticated
individual investors and rating agencies may be able to surmise differential premium categories and
changes in ratings from such disclosed information.
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