TABLE 6
FROM:
Insurers are not Banks: Assessing Liquidity, Efficiency and Solvency Risk Under Alternative Approaches to Capital Adequacy
Paul Kupiec and David Nickerson
BACK TO ARTICLETable 6. Deposit value and loan diversification
| Concentrated bank lending | Diversified bank lending | |||
|---|---|---|---|---|
| State | Payout on two par 5 loans for separate type A projects | Payout on single 6 euro bank deposit | Payout on par 5 loan to each of type A and type B projects | Payout on single 6 euro bank deposit |
| 1 | 3 | 3 | 6 | 6 |
| 2 | 8 | 6 | 9 | 6 |
| 3 | 10 | 6 | 10 | 6 |
| 4 | 10 | 6 | 10 | 6 |
| 5 | 10 | 6 | 10 | 6 |
| 6 | 10 | 6 | 9 | 6 |
| 7 | 10 | 6 | 6 | 6 |
| Deposit value | 5.85 | 6.00 | ||
| Default option value | 0.15 | 0.00 | ||
| Default probability | 0.05 | 0 | ||
Risk-neutral values of 6 euro bank deposits used to finance respective diversified and non-diversified portfolios with corresponding value to banks of deposit default options.
