Abstract
We examine the role of private unlimited deposit insurance as a complement to federal deposit insurance for deposit flows, bank lending, and moral hazard during a crisis. We find that banks whose deposits are federally and privately fully insured obtain more deposits and expand lending, in contrast to banks whose deposits are only federally insured. We also document that privately insured banks remain prudent in the loan origination process during the subprime crisis. Our results offer novel insights into depositor and bank behavior in the presence of multiple deposit insurance schemes with differential design features. They also illustrate how private sector solutions incentivize prudent bank behavior to strengthen the financial safety net.
| Original language | English |
|---|---|
| Article number | 100967 |
| Journal | Journal of Financial Intermediation |
| Volume | 52 |
| Early online date | 29 Oct 2022 |
| DOIs | |
| Publication status | E-pub ahead of print - 29 Oct 2022 |
Bibliographical note
Funding Information:We thank two anonymous referees, the editor (Murillo Campello), Thorsten Beck, Allen Berger, Andrew Campbell, Giovanni Dell'Ariccia, Martin Götz, Linda Goldberg, Paul Guest, Benjamin Guin, Iftekhar Hasan, Elena Loutskina, Kent Matthews, Danny McGowan, Huyen Nguyen, Louis Nguyen, Enrico Onali, Jose-Luis Peydro, Jan Riepe, Yanfei Sun, Larry Wall, and conference participants at the 2018 Swedish House of Finance Conference, the BGSE Summer School Seminar, the Uppsala University and Stockholm Center for Commercial Law Financial Supervision Workshop, the Biannual IADI Research Conference, the Deutsche Bundesbank – IWH – ECONtribute – CEPR Conference on Financial Intermediation in a Globalized World, the FMA Meeting in New Orleans, the FINEST Spring Workshop in Limoges, the Empirical Finance Group Conference Cardiff, and the Münster Banking Research Workshop. We also thank seminar participants at Bangor University, Swansea University, the University of Bristol, the University of Bath, the University of Birmingham, Exeter University, King's College, and at the Bank of England. All remaining errors are our own.
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