The importance of deposit insurance credibility

Bibliographic Details
Main Author: Bonfim, Diana
Publication Date: 2023
Other Authors: Santos, João A.C.
Format: Article
Language: eng
Source: Repositórios Científicos de Acesso Aberto de Portugal (RCAAP)
Download full: http://hdl.handle.net/10400.14/41875
Summary: Sovereigns usually back up their deposit insurance arrangements to lend them credibility. When the sovereign is in distress, the credibility of deposit insurance might be threatened, with detrimental effects to financial stability. We investigate the behavior of depositors during the euro area sovereign debt crisis to understand the importance of deposit insurance credibility. We find that depositors responded to foreign banks’ decision to convert their subsidiaries into branches. By relocating their deposits into these newly formed branches during a period of sovereign distress, depositors became insured by a deposit insurance scheme with a stronger fiscal backstop. These results document a novel channel through which sovereign-bank links can be reinforced during a crisis: the credibility of deposit insurance.
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spelling The importance of deposit insurance credibilityBank depositsBank runsDeposit insuranceMarket disciplineSovereigns usually back up their deposit insurance arrangements to lend them credibility. When the sovereign is in distress, the credibility of deposit insurance might be threatened, with detrimental effects to financial stability. We investigate the behavior of depositors during the euro area sovereign debt crisis to understand the importance of deposit insurance credibility. We find that depositors responded to foreign banks’ decision to convert their subsidiaries into branches. By relocating their deposits into these newly formed branches during a period of sovereign distress, depositors became insured by a deposit insurance scheme with a stronger fiscal backstop. These results document a novel channel through which sovereign-bank links can be reinforced during a crisis: the credibility of deposit insurance.VeritatiBonfim, DianaSantos, João A.C.2023-07-25T13:28:26Z2023-092023-09-01T00:00:00Zinfo:eu-repo/semantics/publishedVersioninfo:eu-repo/semantics/articleapplication/pdfhttp://hdl.handle.net/10400.14/41875eng0378-426610.1016/j.jbankfin.2023.106916info:eu-repo/semantics/openAccessreponame:Repositórios Científicos de Acesso Aberto de Portugal (RCAAP)instname:FCCN, serviços digitais da FCT – Fundação para a Ciência e a Tecnologiainstacron:RCAAP2025-03-13T14:36:03Zoai:repositorio.ucp.pt:10400.14/41875Portal AgregadorONGhttps://www.rcaap.pt/oai/openaireinfo@rcaap.ptopendoar:https://opendoar.ac.uk/repository/71602025-05-29T02:06:29.366251Repositórios Científicos de Acesso Aberto de Portugal (RCAAP) - FCCN, serviços digitais da FCT – Fundação para a Ciência e a Tecnologiafalse
dc.title.none.fl_str_mv The importance of deposit insurance credibility
title The importance of deposit insurance credibility
spellingShingle The importance of deposit insurance credibility
Bonfim, Diana
Bank deposits
Bank runs
Deposit insurance
Market discipline
title_short The importance of deposit insurance credibility
title_full The importance of deposit insurance credibility
title_fullStr The importance of deposit insurance credibility
title_full_unstemmed The importance of deposit insurance credibility
title_sort The importance of deposit insurance credibility
author Bonfim, Diana
author_facet Bonfim, Diana
Santos, João A.C.
author_role author
author2 Santos, João A.C.
author2_role author
dc.contributor.none.fl_str_mv Veritati
dc.contributor.author.fl_str_mv Bonfim, Diana
Santos, João A.C.
dc.subject.por.fl_str_mv Bank deposits
Bank runs
Deposit insurance
Market discipline
topic Bank deposits
Bank runs
Deposit insurance
Market discipline
description Sovereigns usually back up their deposit insurance arrangements to lend them credibility. When the sovereign is in distress, the credibility of deposit insurance might be threatened, with detrimental effects to financial stability. We investigate the behavior of depositors during the euro area sovereign debt crisis to understand the importance of deposit insurance credibility. We find that depositors responded to foreign banks’ decision to convert their subsidiaries into branches. By relocating their deposits into these newly formed branches during a period of sovereign distress, depositors became insured by a deposit insurance scheme with a stronger fiscal backstop. These results document a novel channel through which sovereign-bank links can be reinforced during a crisis: the credibility of deposit insurance.
publishDate 2023
dc.date.none.fl_str_mv 2023-07-25T13:28:26Z
2023-09
2023-09-01T00:00:00Z
dc.type.status.fl_str_mv info:eu-repo/semantics/publishedVersion
dc.type.driver.fl_str_mv info:eu-repo/semantics/article
format article
status_str publishedVersion
dc.identifier.uri.fl_str_mv http://hdl.handle.net/10400.14/41875
url http://hdl.handle.net/10400.14/41875
dc.language.iso.fl_str_mv eng
language eng
dc.relation.none.fl_str_mv 0378-4266
10.1016/j.jbankfin.2023.106916
dc.rights.driver.fl_str_mv info:eu-repo/semantics/openAccess
eu_rights_str_mv openAccess
dc.format.none.fl_str_mv application/pdf
dc.source.none.fl_str_mv reponame:Repositórios Científicos de Acesso Aberto de Portugal (RCAAP)
instname:FCCN, serviços digitais da FCT – Fundação para a Ciência e a Tecnologia
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instname_str FCCN, serviços digitais da FCT – Fundação para a Ciência e a Tecnologia
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collection Repositórios Científicos de Acesso Aberto de Portugal (RCAAP)
repository.name.fl_str_mv Repositórios Científicos de Acesso Aberto de Portugal (RCAAP) - FCCN, serviços digitais da FCT – Fundação para a Ciência e a Tecnologia
repository.mail.fl_str_mv info@rcaap.pt
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