Financial crisis is often caused by a strong negative externality in the credit market. Hence it may be needed to price the cost of externality in order to correct the market distortion. In this paper, we extend the Merton's (1974) model into a general equilibrium model and price the systematic risk for deposit insurance. The systematic risk is considered to be a cost of the negative externality. We show that the systematic risk premium depends upon: 1)the relative riskiness of debt to asset, 2) asset beta and 3) the investor's relative risk aversion. An empirical analysis is done for the Korean commercial banks and the mutual savings banks. We find that the expected default losses are higher for the mutual savings banks than the commercial banks, but the systematic risk premia are in the other way around. We think that the commercial banks tend to be more procyclical as evidenced by their higher beta coefficients. We recommend that the deposit insurance premia should be charged at the rates reflecting the differences in the systematic risk premia.
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