Deposit Insurance, Bank Ownership and Depositor Behavior

We employ proprietary data from a large bank to analyze how – in times of crisis – depositors react to a bank nationalization, re-privatization and an accompanying increase in deposit insurance. Nationalization slows depositors fleeing the bank, provided they have sufficient trust in the national government, while the increase in deposit insurance spurs depositors below the new 100K limit to deposit more. Prior to nationalization, depositors bunch just below the then-prevailing 20K limit. But they abandon bunching entirely during state-ownership, to return to bunching below the new 100K limit after re-privatization. Especially depositors with low switching costs are moving money around.

Atmaca, Sümeyra, Karolin Kirschenmann, Steven Ongena and Koen Schoors (2020), Deposit Insurance, Bank Ownership and Depositor Behavior, ZEW Discussion Paper No. 20-077, Mannheim.