THE IMPACT OF RISK-BASED PREMIUMS ON FDIC-INSURED INSTITUTIONS

This paper examines the effect of a series of announcements leading to the approval of risk-based deposit insurance premiums on returns to s tockholders of commercial banks. Utilizing risk-weighted capital ratio s and measures of overall risk, we group banks according to one of the nine-tier insurance categories subsequently defined by the FDIC. Duri ng the period in which the new insurance system was considered and app roved, we found that stockholders of ''well-capitalized,'' ''healthy'' banks experienced wealth changes significantly different from those e xperienced by less than well-capitalized, less than healthy banks. Alt hough many argued the premium range in the initial insurance schedule was insufficient, the results show that this initial risk-basing marke d an important change in the relative burdens imposed by FDIC insuranc e.